Consolidated statement of financial position


ASSETS Note 12.31.2015 12.31.2014
       
CURRENT ASSETS      

Cash and cash equivalents

121,892 124,033

Other financial assets

6,335 9,490

Working capital

     

Inventories

159,694 144,142

Trade receivables

143,489 148,083

Other receivables

7,915 6,884

Tax receivables

26,753 22,564

Other assets

3,974 3,599

TOTAL WORKING CAPITAL

  341,825 325,272
TOTAL CURRENT ASSETS   470,052 458,795
NON-CURRENT ASSETS      
FIXED ASSETS      

Land

14,299 14,286

Property, plant and equipment

232,610 224,427

Other tangible fixed assets

5,343 5,348

Of which: leases

  6,832 5,148

Intangible assets

284,050 282,996
TOTAL FIXED ASSETS   536,302 527,057
OTHER NON-CURRENT ASSETS      

Investments in joint ventures

- -

Other financial assets available for sale

439 439

Non-current trade receivables

4 4

Financial receivables

13,156 157

Other receivables

34,666 34,626

Deferred tax assets

65,301 71,126
TOTAL OTHER NON-CURRENT ASSETS   113,566 106,352
TOTAL NON-CURRENT ASSETS   649,868 633,409
NON-CURRENT ASSETS HELD FOR SALE - -
       
TOTAL ASSETS   1,119,920 1,092,204
       
LIABILITIES Note 12.31.2015 12.31.2014
       
CURRENT LIABILITIES      

Bank overdrafts and short-term loans

17,843 13,426

Current portion of medium/long-term financial debts and other loans

74,445 64,508

Of which: leases

  1,252 914

TOTAL SHORT-TERM FINANCIAL DEBTS

  92,288 77,934

Other short-term liabilities for derivative financial instruments

325 350

TOTAL SHORT-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS

  92,613 78,284

Trade and other payables

325,421 309,808

Tax payables

6,071 5,323

Other current liabilities

9,686 8,096
TOTAL CURRENT LIABILITIES   433,791 401,511
NON-CURRENT LIABILITIES      

MEDIUM/LONG-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS

     

Financial debts to bank

141,080 131,617

Other medium/long-term financial debts

218,417 203,648

Of which: leases

  8,135 6,481

TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS

  359,497 335,265

Other medium/long-term financial liabilities for derivative financial instruments

11,562 24,464
TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS   371,059 359,729
OTHER LONG-TERM LIABILITIES      

Long-term provisions

79,215 104,326

Other payables

9,195 6,988

Deferred tax liabilities

36,264 38,864
TOTAL OTHER LONG-TERM LIABILITIES   124,674 150,178
TOTAL NON-CURRENT LIABILITIES   495,733 509,907
SHAREHOLDERS' EQUITY      

Share capital

61,681 61,631

Reserves and retained earnings (accumulated losses)

108,042 95,948

Group net result for the year

1,120 3,639
TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO THE HOLDING COMPANY   170,843 161,218

Non-controlling interests

19,553 19,568
TOTAL SHAREHOLDERS' EQUITY   190,396 180,786
TOTAL LIABILITIES AND EQUITY   1,119,920 1.092,204

CASH AND CASH EQUIVALENTS

Cash and cash equivalents amount to Euro 121,892 thousand versus Euro 124,033 thousand as of December 31, 2014 and break down as follows:

(in thousands of Euro) 12.31.2015 12.31.2014
Short-term cash investments 121,835 123,976
Cash on hand 57 57
TOTAL 121,892 124,033

 

“Short-term cash investments” earn interest at a floating rate.

For further details, please refer to the Analysis of the net financial position in note 22 and to the Consolidated Cash Flow Statement included in the financial statements.

As of December 31, 2015, the Group has unused lines of credit for the amount of Euro 300,701 thousand. These funds are available for use on demand, because the conditions required for their availability are met.

Please note that this item includes ARS (Argentine Peso) 13,619 thousand, i.e. the equivalent of Euro 966 thousand at the exchange rate in force on December 31, 2015 (ARS 41,242 thousand, the equivalent of Euro 4,013 at the exchange rate in force on December 31, 2014) held by the Argentinian subsidiaries.

OTHER FINANCIAL ASSETS

“Other financial assets” can be broken down as follows:

(in thousands of Euro) 12.31.2015 12.31.2014
Securities held for trading 17 18
Financial receivables 1,438 2,000
Held-to-maturity investments 3,949 6,953
Assets for derivative financial instruments 931 519
TOTAL 6,335 9,490

 

“Held-to-maturity investments” are measured at amortised cost and include bank term deposits. The reduction of this item is due to the natural expiration of these deposits.
“Assets for derivative financial instruments” total Euro 931 thousand and refer to the fair value of forward foreign exchange contracts. Further details can be found in the analysis of financial instruments contained in note 39.

INVENTORIES

The breakdown of inventories is as follows:

(in thousands of Euro) 12.31.2015 12.31.2014
  Gross Write-downs Net Gross Write-downs Net
Raw, ancillary and consumable materials 60,298 3,829 56,469 55,863 4,141 51,722
Work in progress and semifinished products 14,171 283 13,888 14,126 569 13,557
Contract work in progress and advances 39,190 12 39,178 29,573 21 29,552
Finished goods and goods for resale 55,633 5,474 50,159 54,984 5,673 49,311
TOTAL 169,292 9,598 159,694 154,546 10,404 144,142

 

The gross value of inventories increased by Euro 14,746 thousand compared to the previous year (the increase would amount to Euro 18,513 thousand exchange rates being equal), of which Euro 9,617 thousand reflect an increase in tooling for sale to customers included in “Contract work in progress and advances” (mostly relating to the Air and Cooling business unit), whereas the remaining portion originates from increased volumes.

Writedowns consist for the most part of accruals for raw materials that can no longer be used for current production and for obsolete or slow-moving finished goods, goods for resale and ancillary materials. The decrease in the provisions – by Euro 806 thousand – reflects products scrapped during the year for the amount of Euro 1,299 thousand, that were partly offset by further accruals for Euro 636 thousand and a negative currency exchange effect for Euro 143 thousand.

TRADE AND OTHER RECEIVABLES

Current receivables break down as follows:

(in thousands of Euro) 12.31.2015 12.31.2014
Trade receivables 142,266 150,976
Less: allowance for doubtful accounts 5,367 5,170
Trade receivables, net 136,899 145,806
Due from Parent Company 6,590 2,277
Tax receivables 26,753 22,564
Other receivables 7,915 6,884
Other assets 3,974 3,599
TOTAL 182,131 181,130

 

“Trade receivables, net” are non-interest bearing and have an average due date of 32 days, against 37 days recorded at the end of the previous year.
It should be noted that as of December 31, 2015, the Group factored trade receivables for Euro 88,972 thousand (Euro 78,784 thousand as of December 31, 2014), including an amount of Euro 48,487 thousand (Euro 45,814 thousand as of December 31, 2014) which was not notified and for which the Group continues to manage collection services. The risks and benefits related to these receivables have been transferred to the factor; therefore these receivables have been derecognised in the Statement of Financial Position debiting the consideration received from the factoring company.

Excluding the factoring transactions (Euro 88,972 thousand as at December 31, 2015 and Euro 78,784 thousand as at December 31, 2014) and the effect of exchange rates (Euro 4,866 thousand), net trade receivables increased by Euro 6,147 thousand as a result of the increase in the Group’s business activities in the last quarter of the year compared to the same quarter of the previous year, which was partly offset by lower past due receivables (Euro 6,333 thousand) and changes in the payment terms of bonuses and productivity bonuses in favour of customers.

Further adjustments were booked to “Allowance for doubtful accounts” during the year for a total of Euro 1,554 thousand, against net utilisations of the allowance for the amount of Euro 1,180 thousand (see note 39 for further details). Allowance balance decreased by Euro 177 thousand due to foreign currency exchange effects. Writedowns, net of provisions not used during the period, were charged to Income Statement under the item “Variable cost of sales – Variable sales and distribution costs”.

“Due from Parent Company” as of December 31, 2015 is the amount receivable from the Parent Company CIR S.p.A. arising from the participation in the Group tax filing system on the part of the Italian companies of the Group. Outstanding receivables as at December 31, 2014 (totalling Euro 2,277 thousand) collected in 2015 amounted to Euro 1,487 thousand.
See chapter F for the terms and conditions governing these receivables from CIR S.p.A..

“Tax receivables” as of December 31, 2015 include tax credits due to the Group companies by the tax authorities of the various countries. The increase in this item reflects VAT credits and indirect taxes for the amount of Euro 2,193 thousand, and a tax credit of Euro 2,878 thousand relating to research and development grants in favour of the French subsidiaries; the item considers also a decrease of other tax credits by Euro 882 thousand.
It does not include deferred taxes which are treated separately.

“Other receivables” are made up as follows:

(in thousands of Euro) 12.31.2015 12.31.2014
Amounts due from social security institutions 204 383
Amounts due from employees 320 796
Advances to suppliers 2,659 3,006
Due from others 4,732 2,699
TOTAL 7,915 6,884

 

The increase in “Other receivables” refers for the most part to subsidiaries Sogefi Rejna S.p.A. and Allevard Sogefi U.S.A. Inc. and reflects insurance indemnities.

The item “Other assets” mainly includes accrued income and prepayments on insurance premiums, rents, indirect taxes relating to buildings and on costs incurred for sales activities.

TANGIBLE FIXED ASSETS

The net carrying amount of tangible fixed assets as of December 31, 2015 amounted to Euro 252,252 thousand versus Euro 244,061 thousand at the end of the previous year and breaks down as follows:

(in thousands of Euro) 2015
  Land Buildings, plant and machinery, commercial and industrial equipment Other assets Assets under construction and payments on account TOTAL
Balance at January 1 14,286 191,283 5,348 33,144 244,061
Additions of the period - 19,418 1,623 30,225 51,266
Disposals during the period (2) (203) (28) (27) (260)
Exchange differences 15 (4,939) (352) (326) (5,602)
Depreciation for the period - (35,351) (1,729) (25) (37,105)
Writedowns/revaluations during the period - (243) - - (243)
Reclassification of non-current asset held for sale - - - - -
Other changes - 31,896 481 (32,242) 135
Balance at December 31 14,299 201,861 5,343 30,749 252,252
Historical cost 14,299 804,801 26,647 31,477 877,224
of which: leases - gross value - 13,751 86 369 14,206
Accumulated depreciation - 602,940 21,304 728 624,972
of which: leases - accumulated depreciation - 7,288 86 - 7.374
Net value 14,299 201,861 5,343 30,749 252,252
Net value - leases - 6,463 - 369 6,832

 

(in thousands of Euro) 2014
  Land Buildings, plant and machinery, commercial and industrial equipment Other assets Assets under construction and payments on account TOTAL
Balance at January 1 15,444 185,920 4,957 30,094 236,415
Additions of the period - 16,051 1,729 24,498 42,278
Disposals during the period (1,251) (2,520) (30) (13) (3,814)
Exchange differences 93 4,629 156 878 5.756
Depreciation for the period - (33,667) (1,658) - (35,325)
Writedowns/revaluations during the period - (1,315) (10) (35) (1,360)
Reclassification of non-current asset held for sale - - - - -
Other changes - 22,185 204 (22,278) 111
Balance at December 31 14,286 191,283 5,348 33,144 244,061
Historical cost 14,286 803,835 26,802 33,872 878,795
of which: leases - gross value - 10,694 77 - 10,771
Accumulated depreciation - 612,552 21,454 728 634,734
of which: leases - accumulated depreciation - 5,551 72 - 5,623
Net value 14,286 191,283 5,348 33,144 244,061
Net value - leases - 5,143 5 - 5,148

 

Investments during the year amounted to Euro 51,266 thousand compared with Euro 42,278 thousand in the previous year.

The larger projects regarded the “Assets under construction and payments on account” and “Buildings, plant and machinery, commercial and industrial equipment” categories.

Major investments in the “Assets under construction and payments on account” category mainly reflect investments in subsidiaries Sogefi Filtration do Brasil Ltda for the adjustments made to meet the needs of manufacture at the new plant in Atibaia, Brazil; Allevard Sogefi U.S.A. Inc. and Sogefi Filtration Argentina S.A. to improve production processes and develop new products; Sogefi Rejna S.p.A. to increase production capacity and develop new products;, LPDN GmbH to improve production processes and develop new products and for extraordinary maintenance operations. This item also includes investments in the French companies Allevard Rejna Autosuspensions S.A., Filtrauto S.A. and Systèmes Moteurs S.A.S. for the enhancement of production capacity, the development of new products, the improvement of production processes and quality, and the adjustment of the production lines in compliance with health and safety rules and regulations.

Among the most significant projects in the “Buildings, plant and machinery, commercial and industrial equipment” category, noteworthy are the investments in subsidiaries Sogefi (Suzhou) Auto Parts Co., Ltd to expand production capacity as new products are developed; Allevard Rejna Autosuspensions S.A. to improve production processes and develop new products; S.C. Systèmes Moteurs S.r.l. and Allevard Sogefi U.S.A. Inc. to expand production capacity and develop new products; Sogefi Engine Systems Canada Corp. to improve processes and develop new products.

No relevant disposals were made during 2015.

“Depreciation for the period” has been recorded in the appropriate item in the Income Statement.

“Writedowns/revaluations during the period” totalled Euro 243 thousand and mainly relates to the French subsidiary S. ARA Composite S.A.S..

Impairment losses less reversals are booked to “Other non-operating expenses (income)”.

“Other changes” refer to the completion of projects that were under way at the end of the previous year and their reclassification under the pertinent items.

The balance of “Assets under construction and payments on account” as of December 31, 2015 includes Euro 163 thousand of advances for investments.

The main inactive assets, with a total net value of Euro 8,364 thousand, included in the item “Tangible fixed assets” mostly refer to the Lieusaint plant of subsidiary Allevard Rejna Autosuspensions S.A. (Euro 3,585 thousand) and to investment properties of the Holding Company Sogefi S.p.A. (located in Mantova and San Felice del Benaco, for a total amount of Euro 4,605 thousand). The fair value of these assets as measured by an independent expert report exceeds their net book value. The book value of said assets will be recovered through their sale rather than through their continuous use. As we do not expect to sell them within one year, they are not subject to the accounting treatment envisaged by IFRS 5 and depreciation is continued.

No interest costs were capitalised to “Tangible fixed assets” during the year 2015.

Guarantees

As of December 31, 2015, tangible fixed assets are encumbered by mortgages or liens totalling Euro 7,726 thousand to guarantee loans from financial institutions, compared to Euro 6,652 thousand as of December 31, 2014. Guarantees existing as of December 31, 2015 refer to subsidiaries Sogefi Engine Systems Canada Corp., Allevard IAI Suspensions Private Ltd, United Springs B.V. and Sogefi Filtration do Brasil Ltda.

Purchase commitments

As of December 31, 2015, there are binding commitments to buy tangible fixed assets for Euro 1,709 thousand (Euro 323 thousand as of December 31, 2014) relating to the subsidiaries Allevard Rejna Autosuspensions S.A. and United Springs S.A.S.. Said commitments will be settled within 12 months.

Leases

The carrying value of assets under financial leases as of December 31, 2015 was Euro 14,206 thousand, and the related accumulated depreciation amounted to Euro 7,374 thousand.
Please note that in 2015, subsidiary Allevard Sogefi USA Inc. re-negotiated the financial lease agreement entered into in 2013 after the purchase of additional assets, increasing its value by Euro 2,334 thousand. The new lease agreement presents for the same annual interest rate (3.24%) and term (June 2023) as the original one.
The financial aspects of the lease payments and their due dates are explained in note 16.

INTANGIBLE ASSETS

The net balance as of December 31, 2015 was Euro 284,050 thousand versus Euro 282,996 thousand at the end of the previous year, and breaks down as follows:

(in thousands of Euro) 2015
  Development costs Industrial patents and intellectual property rights, concessions, licences and trademarks Other, assets under construction and payments on account Customer Relationship Trade name Systemes Moteurs Goodwill TOTAL
Balance at January 1 77,773 36,033 19,767 15,833 6,951 126,639 282,996
Additions of the period 16,971 2,248 11,158 - - - 30,377
Disposals during the period (748) - (20) - - - (768)
Exchange differences (992) (33) 277 - - - (748)
Amortisation for the period (21,129) (4,071) (664) (990) (435) - (27,289)
Writedowns during the period - - (114) - - - (114)
Other changes 7,487 328 (8,219) - - - (404)
Balance at December 31 79,362 34,505 22,185 14,843 6,516 126,639 284,050
Historical cost 184,219 64,388 25,788 19,215 8,437 149,537 451,584
Accumulated amortisation 104,857 29,883 3,603 4,372 1,921 22,898 167,534
Net value 79,362 34,505 22,185 14,843 6,516 126,639 284,050
(in thousands of Euro) 2014
  Development costs Industrial patents and intellectual property rights, concessions, licences and trademarks Other, assets under construction and payments on account Customer Relationship Trade name Systemes Moteurs Goodwill TOTAL
Balance at January 1 70,799 28,064 13,014 16,823 7,386 126,639 262,725
Additions of the period 21,016 10,151 10,962 - - - 42,129
Disposals during the period - (7) - - - - (7)
Exchange differences 1,875 33 588 - - - 2,496
Amortisation for the period (17,412) (3,353) (485) (990) (435) - (22,675)
Writedowns during the period (1,739) - (85) - - - (1,824)
Other changes 3,234 1,145 (4,227) - - - 152
Balance at December 31 77,773 36,033 19,767 15,833 6,951 126,639 282,996
Historical cost 171,609 61,982 22,659 19,215 8,437 149,537 433,439
Accumulated amortisation 93,836 25,949 2,892 3,382 1,486 22,898 150,443
Net value 77,773 36,033 19,767 15,833 6,951 126,639 282,996

 

Investments during the year amounted to Euro 30,377 thousand.

The increases in “Development Costs” for the amount of Euro 16,971 thousand refer to the capitalisation of costs incurred by Group companies to develop new products in collaboration with leading motor vehicle manufacturers (after obtaining the nomination from the customer). The largest investments refer to the subsidiaries Systèmes Moteurs S.A.S., Filtrauto S.A., Sogefi Engine Systems Canada Corp., Sogefi Filtration do Brasil Ltda, Allevard Sogefi U.S.A. Inc., Allevard Springs Ltd, Sogefi Engine Systems Mexico S. de R.L. de C.v. and Sogefi (Suzhou) Auto Parts Co., Ltd.

Increases in “Industrial patents and intellectual property rights, concessions, licences and trademarks” amount to Euro 2,248 thousand and refer nearly entirely to the development and implementation in process of the new information system across the Sogefi Group. This integrated information system is amortised on a ten-year basis, based on its estimated useful life, starting from the date of implementation in each subsidiary.

Increases in “Other, assets under construction and payments on account”, for the amount of Euro 11,158 thousand, refer mainly to a large number of investments in the development and implementation of the new products not yet flowed into production. The highest development costs were recorded at subsidiaries Allevard Sogefi U.S.A. Inc., Sogefi Filtration Ltd, Sogefi Filtration d.o.o. and S.C. Systèmes Moteurs S.r.l.

“Disposals during the period” amount to Euro 768 thousand and mostly account for research and development costs incurred by subsidiary Systèmes Moteurs S.A.S. in developing new products charged back to auto makers.

“Writedowns”, for the amount of Euro 114 thousand, reflect development projects of subsidiary Sogefi-MNR Engine Systems India Pvt Ltd. that cannot be recovered.

The item does not include advances to suppliers for the purchase of fixed assets.

“Development costs” principally include costs generated internally, whereas "Industrial patents and intellectual property rights, concessions, licences and trademarks” consist of factors that are acquired externally for the most part.
“Other, assets under construction and payments on account” include around Euro 11,920 thousand of costs generated internally.

There are no intangible assets with an indefinite useful life except for goodwill.

Goodwill and impairment test

From January 1, 2004 goodwill is no longer amortised, but subjected each year to impairment test.

The Company has identified five Cash Generating Units (CGUs), the first two re-nominated in 2015 following the change in the definitions of Business Units (note 4):

  • filtration (before “engine systems – fluid filtration”)
  • air and cooling (before “engine systems – filtration air and cooling”)
  • car suspension
  • industrial vehicle suspension
  • precision springs

For the moment, it is possible to identify goodwill deriving from external acquisitions in three CGUs: engine systems - fluid filters, engine systems - air intake and cooling and car suspension.

The specific goodwill of “CGU Engine Systems – Fluid Filters” amounts to Euro 77,030 thousand; the goodwill of “CGU Engine Systems – Air Intake and Cooling” amounts to Euro 32,560 thousand; and the goodwill of “CGU Car Suspension” amounts to Euro 17,049 thousand.

Impairment tests have been carried out in accordance with the procedure laid down in IAS 36 to check whether there have been any losses in the value of this goodwill, by comparing the book value of the individual CGUs with their value in use, given by the present value of estimated future cash flows that are expected to result from the continuing use of the asset being tested for impairment.
We used the discounted cash flows (Discounted Cash on Flow Unlevered). The Group took into account the cash flows projections expected for 2016 as determined based on the budget (approved by the Board of Directors on January 19, 2016) and the forecasts included in the 2017-2019 projection update (adjusted to eliminate any estimated benefits from future projects and reorganisations) approved by the Board of Directors on February 29, 2016 for the following years. Projections were prepared by management and approved by the Board of Directors for the sole purpose of impairment testing. Budget and projections were prepared taking into account forecasts for the automotive segment made by major sources in the industry and based on a conservative approach.

A discounting rate of 9.55%, which reflects the weighted average cost of capital, was used. The same discounting rate is used for all three CGUs. As a matter of fact, the three CGUs operate in the same sector and deal with the same kind of customers, and it is estimated that they are exposed to the same risk.

The terminal value was calculated using the “perpetual annuity” approach, assuming a growth rate (“g-rate”) of 2% (assumed to be conservative when compared to the forecasts for the automotive segment available from major sources of the industry) and considering an operating cash flow based on the last year of the projection (the year 2018), adjusted to project a stable situation “in perpetuity”, based on the following main assumptions:

  • a balance between capital investment and depreciation (according to the rationale of considering the level of investment needed to "maintain" the business);
  • change in working capital equal to zero.

As regards the average cost of capital, we calculated a weighted average of the cost of debt (taking into consideration the benchmark interest rates plus a spread) and the Company's own cost of capital, based on parameters for a group of firms operating in the European car components sector which are considered by the leading industry analysts to be Sogefi's peers. The values used to calculate the average cost of capital (extrapolated from the main financial sources) are as follows:

  • financial structure of the industry: 17.1%
  • levered beta of the industry: 1.12
  • risk-free rate: 3.0% (annual average of risk-free rates of 10 year securities of the key markets in which the Group operates, weighted by sales revenues)
  • risk premium: 7.0% (weighted average risk premium calculated by primary source of the industry for the key markets in which the Group operates, weighted by sales revenues)
  • debt cost spread: 3.4% (estimate based on the 2016 budget)

As far as the sensitivity analysis goes, it should be noted that:

  • the impairment test reached break-even point at the following discounting rates (growth rate of terminal value remaining unchanged at 2% and all other plan assumptions being equal): 16.75% for CGU Fluid Filters; 12.28% for CGU Air and Cooling; and 14.1% for CGU Car Suspension;
  • the impairment test reached break-even point with a significant reduction in EBIT during the specific period that was also applied to terminal value (all other plan assumptions being equal): -50.1% in CGU Filtration; -26.9% in CGU Air and Cooling; and -39.1% in CGU Car Suspension;
  • the impairment test reached break-even point at the following reduction rates of the terminal value “g-rate” (all other plan assumptions being equal): -8.9% in CGU Filtration; -1.4% in CGU Air&Cooling; and -4.3% in CGU Car Suspension;

The test based on the present value of the estimated future cash flows turns out a value in use of the CGUs that exceeds their carrying value, so no writedown has been posted.

INVESTMENTS IN JOINT VENTURES

As of December 31, 2015, there were no investments in joint ventures.

OTHER FINANCIAL ASSETS AVAILABLE FOR SALE

As of December 31, 2015, these assets totalled Euro 439 thousand. They are unchanged versus December 31, 2014 and break down as follows:

(in thousands of Euro) 12.31.2015 12.31.2014
Equity investments in other companies 439 439
Other securities - -
TOTAL 439 439

 

The balance of “Equity investments in other companies” essentially refers to the 22.62% shareholding in the company AFICO FILTERS S.A.E.. The equity investment was not classified as associate due to the lack of Group’s members in the management bodies of the company (which means the Group does not exert significant influence on the company). This equity investment was measured under the cost method because its fair value could not be measured reliably.

FINANCIAL RECEIVABLES AND OTHER NON-CURRENT RECEIVABLES

Non-current financial receivables total Euro 13,156 thousand (Euro 157 thousand as of December 31) and refer to the fair value of cross currency swap hedging contracts. For further details, please refer to note 39.

“Other receivables” break down as follows:

(in thousands of Euro) 12.31.2015 12.31.2014
Pension fund surplus 23,368 23,368
Other receivables 11,298 11,258
TOTAL 34,666 34,626

"Other receivables" include an indemnification asset of Euro 23,368 thousand owed by the seller of Systèmes Moteurs S.A.S.' shares – booked upon the PPA of the Systèmes Moteurs Group – relating to the recovery of expenses charged by customers following claims on the quality of products sold, based on warranties given by the same seller (after possible partial indemnities obtained from insurers and suppliers). Sogefi S.p.A. initiated international arbitration proceedings, still under way, against the seller of Systèmes Moteurs S.A.S' shares to collect the payables, as provided for by the acquisition contract. For further details, please refer to note 19, paragraph "Provision for product warranties".

The item “Other receivables” also includes tax credits relating to the research and development activities of the French subsidiaries, other tax credits and non-interest bearing guarantee deposits for leased properties. These receivables will be collected over the coming years.

DEFERRED TAX ASSETS

As of December 31, 2015, this item amounts to Euro 65,301 thousand compared to Euro 71,126 thousand as of December 31, 2014.
This amount relates to the expected benefits on deductible temporary differences, booked to the extent that it is probable that it will be recovered. Reference should be made to note 20 for a further discussion of this matter.

NON-CURRENT ASSETS HELD FOR SALE

As of December 31, 2015, there are no non-current assets held for sale.

FINANCIAL DEBTS TO BANKS AND OTHER FINANCING CREDITORS

These break down as follows:

Current portion

(in thousands of Euro) 12.31.2015 12.31.2014
Bank overdrafts and short-term loans 17,843 13,426

Current portion of medium/long-term financial debts

of which: leases

74,445

1,252

64,508

914

TOTAL SHORT-TERM FINANCIAL DEBTS 92,288 77,934
Other short-term liabilities for derivative financial instruments 325 350
TOTAL SHORT-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS 92,613 78,284

 

Non-current portion

(in thousands of Euro) 12.31.2015 12.31.2014
Financial debts to banks 141,080 131,617

Other medium/long-term financial debts

of which: leases

218,417

8,135

203,648

6,481

TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS 359,497 335,265
Other medium/long-term liabilities for derivative financial instruments 11,562 24,464
TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS 371,059 359,729

 

Bank overdrafts and short-term loans

For further details, please refer to the Analysis of the net financial position in note 22 and to the Consolidated Cash Flow Statement included in the financial statements.

Current and non-current portions of medium/long-term financial debts

Details are as follows:

Position as of December 31, 2015 (in thousands of Euro):

Company Bank/Credit Institute Signing date Due date Original amount loan Interest rate Current portion (in thousands of Euro) Non-current portion (in thousands of Euro) Total amount (in thousands of Euro) Real
Guarantees
Sogefi S.p.A. Intesa SanPaolo S.p.A. Apr - 2011 Dec - 2016 60,000 Euribor trim + 260 bps variable 7,868 0 7,868 N/A
Sogefi S.p.A. BNP Paribas S.A. Sep - 2014 Sep - 2019 55,000 Euribor trim + 190 bps variable 0 24,858 24,858 N/A
Sogefi S.p.A. Mediobanca S.p.A. Jul - 2014 Jan - 2016 20,000 Euribor trim + 170 bps variable 0 19,998 19,998 N/A
Sogefi S.p.A. Banca Carige Italia S.p.A. Jul - 2014 Sep - 2017 25,000 Euribor trim + 225 bps variable 5,231 3.969 9,200 N/A
Sogefi S.p.A. ING Bank Jul - 2015 Sep - 2020 30,000 Euribor trim + 190 bps variable 0 29,846 29,846 N/A
Sogefi S.p.A. Mediobanca S.p.A. Jul - 2015 Jan - 2017 20,000 Euribor trim + 130 bps variable 0 19,952 19,952 N/A
Sogefi S.p.A. Banco do Brasil S.A. Sep - 2015 Sep - 2018 19,000 Euribor trim + 130 bps variable 3,800 15,124 18,924 N/A
Sogefi S.p.A. Banco do Brasil S.A. Dec -2012 Apr - 2017 15,000 Euribor trim + 315 bps variable 3,750 3,713 7,463 N/A
Sogefi S.p.A. Banca Carige Italia S.p.A. Nov - 2015 Jun - 2019 10,000 Euribor trim + 130 bps variable 2,811 7,116 9,927 N/A
Sogefi (Suzhou) Auto Parts Co., Ltd ING Bank Jun - 2014 Jan - 2017 11,415 8,80% fixed 5,156 6,259 11,415 N/A
Sogefi (Suzhou) Auto Parts Co., Ltd ING Bank Jun - 2015 Jan - 2017 5,235 8,01% fixed 1,772 3,463 5,235 N/A
Sogefi (Suzhou) Auto Parts Co., Ltd Unicredit S.p.A. Jan - 2015 Jan - 2016 7,876 7,28% fixed 7,876 0 7,876 N/A
Sogefi (Suzhou) Auto Parts Co., Ltd Unicredit S.p.A. Nov - 2015 Nov - 2016 6,498 6,96% fixed 6,498 0 6,498 N/A
Sogefi (Suzhou) Auto Parts Co., Ltd Commerzbank AG Jan - 2015 Jan - 2016 3,265 5,78% fixed 3,265 0 3,265 N/A
Sogefi (Suzhou) Auto Parts Co., Ltd Intesa SanPaolo S.p.A. May - 2015 Dec - 2016 4,466 6,72% fixed 4,466 0 4,466 N/A
Sogefi (Suzhou) Auto Parts Co., Ltd Intesa SanPaolo S.p.A. May - 2015 Dec - 2016 2,702 5,52% fixed 2,702 0 2,702 N/A
Sogefi Filtration do Brasil Ltda Banco Itau BBA International S.A. Feb -2013 Mar - 2016 4,818 5,5% fixed 4,818 0 4,818 N/A
Sogefi Filtration do Brasil Ltda Banco do Brasil S.A. Sep - 2015 Aug - 2018 2,319 17,96% fixed 640 1,679 2,319 N/A
Sogefi Engine Systems Canada Corp. Ge Capital May - 2015 May - 2019 3,969 B/A 3m+ 4.207% variable 941 2,799 3,740 YES
Sogefi Filtration S.A. Banco Sabadell S.A. May - 2011 May - 2016 7,000 Euribor trim + 225 bps variable 700 0 700 N/A
S.C. Systèmes Moteurs S.r.l. ING Bank May - 2013 May - 2017 2,459 ROBOR 3M +5,5% 820 262 1,082 N/A
Other loans           11,331 2,042 13,373  
TOTAL           74,445 141,080 215,525  

 

Line “Other medium/long-term financial debts” includes other minor loans, as well as financial lease payments in accordance with IAS 17.

Balance at December 31, 2014 (in thousands of Euro):

Company Bank/Credit Institute Signing date Due date Original amount loan Interest rate Current portion (in thousands of Euro) Non-current portion (in thousands of Euro) Total amount (in thousands of Euro) Real
Guarantees
Sogefi S.p.A. Intesa SanPaolo S.p.A. Apr - 2011 Dec - 2016 60,000 Euribor 3m + 230 bps variable 8,000 37,736 45,736 N/A
Sogefi S.p.A. BNP Paribas S.A. Sep - 2014 Sep - 2019 55,000 Euribor 3m + 290 bps variable - 24,777 24,777 N/A
Sogefi S.p.A. Mediobanca S.p.A. Jul - 2014 Jan - 2016 20,000 Euribor 3m + 170 bps variable - 19,948 19,948 N/A
Sogefi S.p.A. Banca Carige Italia S.p.A. Jul - 2014 Sep - 2017 25,000 Euribor 3m + 225 bps variable 5,040 9,143 14,183 N/A
Sogefi S.p.A. Banco do Brasil S.A. Dec - 2012 Apr - 2017 15,000 Euribor 3m + 315 bps variable 3,750 7,435 11,185 N/A
Sogefi S.p.A. Unicredit S.p.A. Jul - 2014 Jul - 2019 50,000 Euribor 3m + 200 bps variable - 9,748 9,748 N/A
Sogefi (Suzhou) Auto Parts Co., Ltd ING Bank Mar - 2013 Mar - 2016 9,164 9.79% fixed 4,312 4,852 9,164 N/A
Sogefi (Suzhou) Auto Parts Co., Ltd ING Bank Mar - 2013 Mar - 2016 3,840 9.79% fixed 2,124 1,716 3,840 N/A
Sogefi (Suzhou) Auto Parts Co., Ltd Unicredit S.p.A. Oct - 2014 Jun - 2015 9,567 7.28% fixed 9,567 - 9,567 N/A
Sogefi (Suzhou) Auto Parts Co., Ltd Unicredit S.p.A. Nove - 2014 Jun - 2015 4,612 7.28% fixed 4,612 - 4,612 N/A
Sogefi (Suzhou) Auto Parts Co., Ltd Commerzbank AG Dec - 2014 Jun - 2015 3,112 6.42% fixed 3,112 - 3,112 N/A
Allevard Rejna Autosuspensions S.A. CIC Bank S.A. May - 2014 May - 2015 4,000 Euribor 12m + 150 bps variable 4,000 - 4,000 N/A
Sogefi Filtration do Brasil Ltda Banco Itau BBA International S.A. Feb - 2013 Mar - 2016 6,450 5.5% fixed - 6,450 6,450 N/A
Sogefi Filtration do Brasil Ltda Banco do Brasil S.A. Jul - 2014 Aug - 2017 3,517 8% fixed - 3,517 3,517 N/A
Sogefi Engine Systems Canada Corp. Ge Capital Nov - 2012 Nov - 2017 3,022 B/A 3m + 4.65% variable 663 1,385 2,048 YES
Sogefi Engine Systems Canada Corp. Ge Capital Nov - 2012 Nov - 2017 3,022 6.23% fixed 662 1,392 2,054 YES
Systèmes Moteurs Sas CIC Bank S.A. May - 2014 May - 2015 3,500 Euribor 12m + 150 bps variable 3,500 - 3,500 N/A
Sogefi Filtration S.A. Banco Sabadell S.A. May - 2011 May - 2016 7,000 Euribor 12m + 225 bps variable 1,400 700 2,100 N/A
Other loans           13,766 2,818 16,583 N/A
TOTAL           64,508 131,617 196,124  

 

Other short-term liabilities for derivative financial instruments

The item includes the short-term portion of the fair value of the exchange risk hedging contracts.
Reference should be made to chapter E for a further discussion of this matter.

Other medium/long-term financial debts

As of December 31, 2015, details were as follows (in thousands of Euro):

Company Bank/Credit Institute Signing date Due date Original amount loan (in thousands) Interest rate Total amount at December 31, 2015 (in thousands of Euro) Real guarantees
Sogefi S.p.A.  Private placement May - 2013 May - 2023 USD 115,000 Fixed coupon 600 bps 105,302 N/A
Sogefi S.p.A. Private placement May - 2013 May - 2020 Euro 25,000 Fixed coupon 505 bps 24,940 N/A
Sogefi S.p.A. Equity linked bond May - 2014 May - 2021 Euro 100,000 Fixed coupon 2% year 78,627 N/A
Other financial debts           9,548 N/A
TOTAL           218,417  

 

Line “Other loan” includes other minor loans, as well as financial lease payments in accordance with IAS 17.

As of December 31, 2014, details were as follows:

Company Bank/Credit Institute Signing date Due date Original amount loan (in thousands) Interest rate Total amount at December 31, 2014 (in thousands of Euro) Real guarantees
Sogefi S.p.A.  Private placement May - 2013 May - 2023 USD 115,000 Fixed coupon 600 bps 94,359 N/A
Sogefi S.p.A. Private placement May - 2013 May - 2020 Euro 25,000 Fixed coupon 505 bps 24.922 N/A
Sogefi S.p.A. Equity linked bond May - 2014 May - 2021 Euro 100,000 Fixed coupon 2% year 75,527 N/A
Other financial debts           8,840 N/A
TOTAL           203,648  

 

The bond of USD 115,000 thousand increased as a result of the variation into the Euro-to-USD exchange rate (hedged as detailed in section E).

On May 13, 2014, the Board of Directors resolved to issue the convertible bonds “€ 100,000,000 2 per cent. Equity Linked Bonds due 2021”, which were placed with institutional investors on May 14, 2014. Settlement took place on May 21, 2014 when the bonds were issued and investors paid a subscription price for a total nominal amount of Euro 100 million. Bond term is seven years from date of settlement. The bonds were listed on the Third Market (MTF) of the Vienna Stock Exchange on June 13, 2014 with a minimum denomination of Euro 100 thousand and carry a six-monthly coupon at a fixed annual interest rate of 2%.
The Extraordinary Shareholders' Meeting of September 26, 2014 authorised a share capital increase in cash instalments with the exclusion of the shareholders' option right under article 2441, paragraph 5, of the Italian Civil Code, for a maximum total nominal amount of Euro 9,657,528.92, to be paid up by issuing up to 18,572,171 Sogefi ordinary shares, in one or more instalments, to be exclusively used for said bonds. According to the regulations, the Holding Company Sogefi S.p.A. had the right to settle any conversion by assigning Sogefi ordinary shares, by cash or a combination of ordinary shares and cash.

At maturity date (May 21, 2021), the bonds will be paid back in a single instalment, unless they are redeemed or converted earlier.
Each bondholder may request early redemption in cash up to an amount equal to the nominal value of the Bonds plus accrued interest not yet paid upon occurrence of a Change of Control Event (when a party other than the current controlling parties holds more than 50% of shares with voting rights directly or indirectly, as provided for by the Regulations) and of a Free Float Event (when the Free Float of ordinary shares drops below 20%, as provided for by the Regulations).
The fair value of these options was deemed to be immaterial.

Upon the decision of the Board of Directors of January 19, 2015 and the execution of a formal waiver (Deed Poll), subject to the British law, on January 28, 2015 (notified to the agent on January 29. 2015), the Holding Company Sogefi S.p.A. has unilaterally waived its right to refund the convertible bonds in cash rather than ordinary shares in case of the conversion right being exercised under the bond issue regulations. This waiver is final, unconditional and irrevocable. The matter of the waiver to this right has a similar effect, under the British law, to an amendment to the bond issue regulations.
As at January 28, 2015 the fair value of the option (calculated based on the same model applied on December 31, 2014) amounted to Euro 9,090 thousand (Euro 10,540 thousand at December 31, 2014). This produced a positive effect in the 2015 Income Statement for Euro 1,450 thousand. Moreover, since the execution of the deed poll has a similar effect to an amendment of the bond issue regulations, the Holding Company Sogefi S.p.A. reconsidered the liability-equity classification of the option as recorded at the first posting of the option (upon the expiry of the call option in favour of the Holding Company Sogefi S.p.A. in an irrevocable, final and unconditional fashion). Therefore, on that date the Holding Company Sogefi S.p.A. reclassified the amount for the option described above (Euro 9,090 thousand) under the item "Other medium/long-term financial liabilities for derivative financial instruments" to an equity reserve, since bond holders will have solely the right to convert the bonds in a fixed and pre-arranged number of shares.

The Holding Company Sogefi S.p.A. may fully redeem the bonds early up to the amount of their nominal value plus accrued interest not yet paid in the cases provided for by the Regulations, in line with market practice, where (i) early conversion or redemption rights have been exercised for at least 85% of the original nominal amount of the Bond, and (ii) the trading price of the ordinary shares of the Company exceeds a certain threshold at certain specific dates, as specified in the Regulations.

During the second half of 2015, the Holding Company Sogefi S.p.A. entered into the following new bank loan agreements and utilised their full amounts:

  • revolving loan of Euro 20 million obtained from Mediobanca S.p.A. in July 2015, expiring in January 2017, at market rates linked to the 3-month Euribor plus a spread of 130 basis points;
  • loan of Euro 30 million, repayable in instalments during the term of the loan, granted by Ing Bank N.V. in July 2015, with final expiry date in September 2020, at market rates linked to the 3-month Euribor plus a spread of 190 basis points;
  • loan of Euro 19 million, repayable in instalments during the term of the loan, granted by Banco do Brasil S.A. in September 2015, with final expiry in September 2018, at market rates linked to the 3-month Euribor plus a spread of 130 basis points;
  • loan of Euro 10 million, repayable in instalments during the term of the loan, granted by Banca Carige Italia S.p.A. in November 2015, with final expiry in June 2019, at market rates linked to the 6-month Euribor plus a spread of 130 basis points.

When the new loans were taken out, the Holding Company Sogefi S.p.A. redeemed the revolving portions of the loans granted by Intesa Sanpaolo S.p.A. (Euro 30 million) and Unicredit S.p.A. (Euro 10 million). Such revolving portions remain available for draw-down to the Holding Company Sogefi S.p.A. until loan expiry.

It should also be noted that, in November 2014, the Holding Company Sogefi S.p.A. had executed a revolving loan agreement with Société Générale for a total amount of Euro 30 million expiring in November 2019. As at December 31, 2015, the Company has not carried out any draw-down from such loan.

The existing loans are not secured by the Holding Company Sogefi S.p.A.’s assets. Furthermore, note that, contractually, the spreads relating to the loans of the Holding Company Sogefi S.p.A. are reviewed every six months on the basis of the computation of the consolidated NFP/normalised consolidated EBITDA ratio. For an analysis of the covenants relating to loans outstanding at the end of the period, please refer to the note below entitled “Analysis of the financial position”.

Other medium/long-term financial liabilities for derivative financial instruments

The item includes the medium/long-term portion of the fair value of the interest and exchange risk hedging instruments.
Reference should be made to chapter E for a further discussion of this matter.

Finance leases

The Group has finance leases as well as rental and hire contracts for building, plant and machinery that, according to their type, cover almost the entire useful life of the asset concerned. The assets held under these leases, rental and hire contracts are booked in accordance with IAS 17 as though they were fixed assets owned by the company, disclosing their historical cost, depreciation, the financial cost and the residual liability.

Future payments deriving from these contracts can be summarised as follows:

(in thousands of Euro) Instalments Capital
Within 12 months 1,721 1,252
Between 1 and 5 years 6,508 5,308
Beyond 5 years 3,028 2,827
Total lease payments 11,257 9,387
Interests (1,870) -
TOTAL PRESENT VALUE OF LEASE PAYMENTS 9,387 9,387

 

The contracts included in this item refer to the following subsidiaries:

  • Sogefi Filtration Ltd for a long-term rental contract for the production site in Tredegar. The contract expires in September 2022 and the original total amount of the contract was Euro 3,611 thousand; the future capital payments amount to Euro 2,316 thousand and the annual nominal rate of interest applied by the lessor is 11.59%.

    The Group has given sureties for this contract.
    This rental contract has been accounted for as financial leases, as required by IAS 17, where the present value of the rent payments amounted approximately with the fair value of the asset at the time the contract was signed.

  • Allevard Sogefi USA Inc. has entered into the following lease contracts for the Prichard production site relating to:
    1. plants, machinery and improvements to the building for an original amount of Euro 1,470 thousand. The contract expires in May 2019, the future capital payments amount to Euro 555 thousand and the annual interest rate applied by the lessor is equal to 3.92%. The Group has given sureties for this contract;
    2. plants, machinery and improvements to the building for an original amount of Euro 2,643 thousand. The contract expires in July 2019, the future capital payments amount to Euro 1,088 thousand and the annual interest rate applied by the lessor is equal to 3%. The Group has given sureties for this contract.
    3. plants, machinery and improvements to the building for an original amount of Euro 3,992 thousand. Please note that in 2015, subsidiary Allevard Sogefi USA Inc. re-negotiated the financial lease agreement entered into in 2013 after the purchase of new machinery, increasing its value by Euro 1,490 thousand. The new lease agreement provides for the same annual interest rate (3.24%) and term (June 2023). Overall residual principal amount is Euro 5,428 thousand.

      The Group has given sureties for this agreement.

There are no restrictions of any nature on these leases. Upon expiry of the contracts ownership of the assets is transferred to the lessee without payment of any purchase price. These contracts are therefore accounted for as financial leases, as required by IAS

TRADE AND OTHER CURRENT PAYABLES

The amounts shown in the financial statements can be broken down into the following categories:

(in thousands of Euro) 12.31.2015 12.31.2014
Trade and other payables 325,421 309,808
Tax payables 6,071 5,323
TOTAL 331,492 315,131

 

Details of trade and other payables are as follows:

(in thousands of Euro) 12.31.2015 12.31.2014
Due to suppliers 256,544 242,383
Due to the parent company 2,428 142
Due to tax authorities for indirect and other taxes 8,607 10,144
Due to social and security institutions 21,750 20,514
Due to employees 29,719 30,049
Other payables 6,373 6,576
TOTAL 325,421 309,808

 

Amounts “Due to suppliers ” are not interest-bearing and are settled on average in 70 days (74 days at December 31, 2014).
There is no significant concentration of payables due to any one supplier or small group of suppliers.

The amounts “Due to suppliers” increased by Euro 14,161 thousand (by Euro 17,141 thousand exchange rates being equal); this is mainly due to business growth in the last portion of 2015 compared to the same period of 2014.

Amounts “Due to parent company” reflect the consideration of Euro 1,454 thousand due for the fiscal surplus transferred by companies that have joined the CIR Group tax filing system; Euro 898 thousand represent the tax debt in connection with the CIR Group tax filing system, and Euro 76 thousand reflect outstanding Directors' remuneration charged back to the parent company Cir S.p.A. For further details, please refer to note 40.

The decrease in amounts “Due to tax authorities for indirect and other taxes” mainly refers to VAT debts.

OTHER CURRENT LIABILITIES

“Other current liabilities” for the amount of Euro 9,686 thousand (Euro 8,096 as of December 31, 2014) include adjustments to costs and revenues for the period so as to ensure compliance with the accruals based principle (accrued expenses and deferred income) and advances received from customers for orders still to be delivered. The increase in the item mainly relates to subsidiary Systèmes Moteurs S.A.S. and reflects advances paid by customers for research and development projects.

LONG-TERM PROVISIONS AND OTHER PAYABLES

These are made up as follows:

Details of the main items are given below.

(in thousands of Euro) 12.31.2015 12.31.2014
Pension funds 42,575 47,361
Provision for employment termination indemnities 6,316 8,405
Provision for restructuring 5,194 19,296
Provisions for disputes with tax authorities 202 2,179
Provision for phantom stock options 8 -
Provision for product warranties and other risks 23,258 25,874
Agents' termination indemnities 4 102
Lawsuits 1,658 1,109
TOTAL 79,215 104,326

 

Pension funds

The amount of Euro 42,575 thousand represents the amount set aside at year end by the various Group foreign companies to cover the liabilities of their various pension funds. Changes in the pension funds occurred during the year are shown below:

(in thousands of Euro) 12.31.2015 12.31.2014
Opening balance 47,361 28,445
Cost of benefits charged to income statement 3,941 (153)
"Other Comprehensive Income" (7,176) 21,063
Contributions paid (2,921) (2,722)
Exchange differences 1,370 728
TOTAL 42,575 47,361

 

The following table shows all of the obligations deriving from “Pension funds” and the present value of the plan assets for the year 2015 and the two previous years.

(in thousands of Euro) 12.31.2015 12.31.2014 12.31.2013
Present value of defined benefit obligations 221,701 222,291 186,866
Fair value of plan assets 179,126 174,930 158,421
Deficit 42,575 47,361 28,445
Liability recorded to "Long-term provisions" 42,575 47,361 31,321
Surplus recorded to "Other receivables" - - (2,876)

 

Changes in the "Present value of defined benefit obligations" for the year 2015 were as follows:

(in thousands of Euro) 12.31.2015 12.31.2014
Present value of defined benefit obligations at the beginning of the period 222,291 186,866
Current service cost 1,647 1,769
Financial expenses 8,128 8,266
Remeasurement (gains)/losses    
- Actuarial (gains)/losses arising from changes in demographic assumptions (305) (220)
- Actuarial (gains)/losses arising from changes in financial assumptions (14,010) 26,351
- Actuarial (gains)/losses arising from experience (391) (1,676)
- Actuarial (gains)/losses arising from "Other long-term benefits" - Jubilee benefit 164 (1,102)
Past service cost - (1,794)
Contribution paid by plan participants 227 212
Settlements/Curtailments - (860)
Exchange differences 12,163 12,053
Benefits paid (8,213) (7,574)
Present value of defined benefit obligations at the end of the period 221,701 222,291

 

“Actuarial (gains)/losses arising from changes in financial assumptions” are mainly due to increasing discounting rate in British pension funds.
“Actuarial (gains)/losses arising from experience adjustments” reflect the difference between actuarial assumptions and what occurred in practice (for instance, in terms of employee turnover, wage inflation or inflation rate).
“Actuarial (gains)/losses relating to other long-term benefits” mainly relate to subsidiary Filtrauto S.A..

With regard to the balances of companies that use functional currencies other than the Euro, please note that the Income Statement items are translated into Euro using the average exchange rate of the reporting period; the present value of obligations at beginning and end of period was translated at the rate of exchange ruling at the relevant date.

Changes in the fair value of plan assets are illustrated in the table below:

(in thousands of Euro) 12.31.2015 12.31.2014
Fair value of plan assets at the beginning of the period 174,930 158,421
Interest income 6,675 7,433
Remeasurement (gains)/losses:    
Return on plan assets (7,530) 3,392
Non investment expenses (677) (1,001)
Contributions paid by the company 1,718 1,447
Contributions paid by the plan participants 227 212
Settlements/curtailments - -
Exchange differences 10,792 11,317
Benefits paid (7,009) (6,291)
Fair value of plan assets at the end of the period 179,126 174,930

With regard to the balances of companies that use functional currencies other than the Euro, please note that the Income Statement items are translated into Euro using the average exchange rate of the reporting period, whereas the fair value of assets at beginning and end of period was translated at the rate of exchange ruling at the relevant date.

Details of the amounts recognised in “Other comprehensive income” are given below:

(in thousands of Euro) 12.31.2015 12.31.2014
Return on plan assets (excluding amounts included in net interests expenses on net liability assets) 7,530 (3,392)
Actuarial (gains)/losses arising from changes in demographic assumptions (305) (220)
Actuarial (gains)/losses arising from financial assumptions (14,010) 26,351
Actuarial (gains)/losses arising from experience (391) (1,676)
Value of the net liability (asset) to be recognised in "Other Comprehensive income" (7,176) 21,063

The amounts charged to the Income Statement can be summarised as follows:

(in thousands of Euro) 12.31.2015 12.31.2014
Current service cost 1,647 1,769
Net interest cost 1,453 833
Past service cost - (1,794)
Actuarial (gains)/losses recognised during the year on "Other long-term benefits" - Jubilee benefit 164 (1,102)
Non investment expenses 677 1,001
Settlements/Curtailments - (860)
TOTAL 3,941 (153)

Items “Current service cost”, “Past service cost” and “Non-management costs of plan assets” are included in the various “Labour cost” lines of Income Statement items.
Line “Financial expenses, net” is included in “Financial expenses (income), net”.
“Actuarial (gains) losses related to jubilee benefits recognized during the year” and “Settlements/Curtailments” are included in “Other non-operating expenses (income)”.

Defined-benefit plans expose the Group to the following actuarial risks:

  • Investment risk (only applies to British subsidiaries that hold plan assets): the present value of the defined-benefit obligation is calculated at a discount rate determined with reference to returns on AA-rated Eurozone corporate bonds; if the return on plan assets is lower than this rate, the plan will be in deficit. For this reason, and considering the long-term nature of plan liabilities, the British companies' funds diversified their portfolios to include investment in properties, debt instruments and equity instruments.
  • Interest risk: a decrease in the discount rate will lead to an increase in plan liability; however, if plan assets are present, such increase will be partially offset by an increase in the return on plan investments.
  • Longevity risk: the value of the defined-benefit obligation is calculated taking into account the best possible estimate of the mortality rate of plan beneficiaries; an increase in life expectancy leads to an increase in the resulting obligation.
  • Inflation risk/wage inflation risk: the value of the definite-benefit plan with reference to employees in service is calculated taking into account future pay rises and inflation rate: an increase in these elements causes the relevant obligation to increase.

The following table shows the breakdown of “Pension funds” by geographical area of the relevant subsidiaries:

(in thousands of Euro) 12.31.2014
  Great Britain France Other TOTAL
Present value of defined benefit obligations 196,097 22,536 3,658 222,291
Fair value of plan assets 174,858 - 72 174,930
Deficit 21,239 22,536 3,586 47,361
(in thousands of Euro) 12.31.2015
  Great Britain France Other TOTAL
Present value of defined benefit obligations 195,409 22,650 3,642 221,701
Fair value of plan assets 179,031 - 95 179,126
Deficit 16,378 22,650 3,547 42,575

Deficit reduction in Great Britain can be traced back mainly to an increase in the discounting rate.

Note that the actuarial valuations of the “Pension funds” are carried out in collaboration with external specialists.

The following paragraphs summarise the pension systems in the geographical areas that affect the Group the most: Great Britain and France.

Great Britain

In Great Britain, pension plans are mainly private, being made with fund management companies and administered independently from the company.
They are classified as defined-benefit plans subject to actuarial valuation that are accounted for according to the corridor approach as provided for by IAS 19.
With regard to plan governance, administrators are representatives of employees, former employees and employer; they are required by law to act in the interest of the fund and of all main stakeholders and are responsible for the investment policies adopted for plan assets.
With regard to the nature of employee benefits, employees are entitled to a post-employment annuity calculated by multiplying a portion of the wage earned at retirement age by the number of years of service until retirement age.

The main assumptions used in the actuarial valuation of these “Pension funds” were as follows:

  12.31.2015 12.31.2014
Discount rate % 3.9 3.6
Expected annual wage rise % 2.2-3.7 2.2-3.1
Annual inflation rate % 2.2-3.2 2.1-3.1
Retirement age 65 65

The higher “Discount rate” versus the previous year reflects the upward trend in returns on AA-rated UK corporate bonds recorded in 2015. The “Discount rate” is calculated based on the returns on Eurozone AA-rated corporate bonds (average duration of 13 years) adjusted for the longer average duration of the bond (19 years).

Changes in the present value of the UK funds obligation for 2015 and 2014 were as follows:

(in thousands of Euro) 12.31.2015 12.31.2014
Present value of defined benefit obligations at the beginning of the period 196,097 158,622
Current service cost 269 172
Financial expenses 7,481 7,370
Remeasurement (gains)/losses:    
- Actuarial (gains)/losses arising from changes in demographic assumptions - -
- Actuarial (gains)/losses arising from changes in financial assumptions (13,825) 25,694
- Actuarial (gains)/losses arising from experience - -
Past service cost - (1,731)
Contribution paid by plan participants 227 212
Settlements/Curtailments - -
Exchange differences 12,156 12,049
Benefits paid (6,996) (6,291)
Present value of defined benefit obligations at the end of the period 195,409 196,097

 

Changes in the fair value of UK plan assets are illustrated in the table below:

(in thousands of Euro) 12.31.2015 12.31.2014
Fair value of plan assets at the beginning of the period 174,858 158,365
Interest income 6,668 7,428
Remeasurement (gains)/losses:    
Return on plan assets (7,530) 3,392
Non investment expenses (677) (1,001)
Contribution paid by the company 1,696 1,430
Contribution paid by plan participants 227 212
Settlements/Curtailments - -
Exchange differences 10,785 11,323
Benefits paid (6,996) (6,291)
Fair value of plan assets at the end of the period 179,031 174,858

 

Changes in the fair value of UK plan assets are illustrated in the table below:

(in thousands of Euro) 12.31.2015 12.31.2014
Debt instruments 23,3% 28.2%
Equity instruments 32,2% 44.2%
Real estate investments 0,3% 0.5%
Cash 13,7% 8.6%
Derivatives 28,4% 16.8%
Other assets 2,1% 1.7%
TOTAL 100,0% 100.0%

 

The fair value of these financial instruments was measured based on quoted prices available in active markets.

Asset allocation at the end of the year 2015 shows an increase in derivative instruments. Such increase reflects a change in the investment strategy aimed at reducing risk, that favours Liability Driven Investment strategies (investment approach that identifies strategic asset allocation based on the liability, albeit implicit, to be hedged). In line with this approach, and in order to improve the efficiency of the investment strategy, investments in derivative instruments were increased to hedge for the exchange, interest rate and inflation risks associated with certain investment strategies.
Please note that the fund's dynamic management strategy requires asset allocation to be adjusted to present economic conditions and future expectations.

Debt instruments are mostly foreign corporate securities. Equity instruments are mostly foreign securities (emerging country securities constitute a minimal share ).

The Trustee Board periodically reviews the plan's investment strategies and diversifies them by risk and asset profitability. These strategies take into account the nature and duration of liabilities, the fund's financing needs and the employer's ability to meet the fund's commitments. The fund of subsidiary Sogefi Filtration Ltd uses derivative financial instruments to hedge the risk of changes in liability value connected with inflation, exchange and interest rates.

With regard to the impact of the defined-benefit plan of the UK companies on the Group's future cash flows, expected contributions to the plans for the next year total Euro 1,428 thousand.

Average bond duration as of December 31, 2015 is approximately 19 years.

In compliance with the IAS 19, a sensitivity analysis was performed to determine how the present value of the bond changes as the most significant actuarial assumptions change, other actuarial assumptions being equal.
Considering the peculiar operation of UK funds, the following actuarial assumptions are considered significant:

  • Discount rate
  • Wage inflation rate
  • Life expectancy

An overview of the changes in the present value of the obligation triggered by changes in these actuarial assumptions is provided below:

(in thousands of Euro) 12.31.2015
  +1% -1%
Discount rate (31,802) 41,233
Rate of salary increase 2,406 (2,170)
(in thousands of Euro) 12.31.2015
  + 1 year - 1 year
Life expectancy 5,076 (5,125)

 

France

Pensions in France are essentially based on state pension plans and the responsibility of the company is limited to paying the contributions established by law.

In addition to this basic assistance guaranteed by the state, retiring employees are also entitled to other additional amounts under collective labour agreements that are determined based on length of service and salary level, and are only paid if the employee reaches retirement age in the company. An employee leaving the company before retirement age will lose these additional benefits.
These additional benefits are recognised as a liability for the company and, in accordance with IAS 19, they are considered as defined-benefit plans subject to actuarial valuation.

In addition to the retirement indemnity, a collective labour agreement provides for a “Jubilee benefit” (which is calculated with a different method at each different French subsidiary) that vests upon reaching 20, 30, 35 and 40 years of service with the company. Under the IAS 19, this “Jubilee benefit” falls under the residual category of “Other long-term benefits” and is subject to actuarial valuation; actuarial gains (losses) must be recognised in the Income Statement for that year. Employees will lose the bonus falling due upon the different service jubilee bonuses if they leave the company before reaching the years of service mentioned above.

The main assumptions used in the actuarial valuation of these “Pension funds” were as follows:

  12.31.2015 12.31.2014
Discount rate % 2.5 2.4
Expected annual wage rise % 2.5 2.5
Annual inflation rate % 1.8 1.0
Retirement age 62-67 62-67

The “Discount rate” is calculated based on the returns on Eurozone AA-rated corporate bonds (average duration of 15 years).

Changes in the "Present value of defined benefit obligations" were as follows:

(in thousands of Euro) 12.31.2015 12.31.2014
Present value of defined benefit obligations at the beginning of the period 22,536 24,814
Current service cost 1,275 1,529
Financial expenses 541 781
Remeasurement (gains)/losses:    

- Actuarial (gains)/losses arising from changes in demographic assumptions

(305) (230)
- Actuarial (gains)/losses arising from changes in financial assumptions (187) 339
- Actuarial (gains)/losses arising from experience (460) (1,716)
- Acturial (gains)/losses related to "Other long-term benefits" - Jubilee benefit 163 (1,099)
Settlements/Curtailments -. (860)
Benefits paid (913) (1,022)
Present value of defined benefit obligations at the end of the period 22,650 22,536

 

“Actuarial (gains)/losses arising from experience adjustments” reflect the difference between actuarial assumptions and what occurred in practice (for instance, in terms of employee turnover, wage inflation or inflation rate).

The sensitivity analysis of the French funds was performed by varying the following actuarial assumptions:

  • Discount rate
  • Wage inflation rate

An overview of the changes in the present value of the obligation triggered by changes in these actuarial assumptions is provided below:

(in thousands of Euro) 12.31.2015
  +1% -1%
Discount rate (3,058) 3,528
Rate of salary increase 3,406 (3,079

 

Provision for employment termination indemnities

This aspect only concerns the Group's Italian companies, where pensions are represented by state plans and the company's responsibility is limited to regular payment of social contributions each month.
In addition to state-provided pensions, employees are entitled by law to a termination indemnity that accrues in accordance with length of service and is paid when an employee leaves the company.
The termination indemnity is calculated based on the length of service and taxable remuneration of each employee.
The corresponding liability is put aside in a specific provision and the amounts accrued in previous years are subject to annual revaluation based on the official cost-of-life index and at the legal interest rates; it is not associated with any conditions or accrual periods, nor does it require any financial provision; as a result, there are no assets underlying the provision.
This termination indemnity is considered as a defined-benefit provision, but subject to actuarial valuation for the part relating to the expected future benefits in respect of past service (which is the part subject to annual revaluation).
Further to the amendments to the “Provision for employment termination indemnities” introduced by Law 296 of December 27, 2006 and subsequent decrees and regulations issued in the early part of 2007, for companies with 50 or more employees (Sogefi Rejna S.p.A.), the portions of the provision accruing as from January 1, 2007 are transferred - at employee's option - to supplementary pension funds or to the treasury fund held by INPS (the Italian social security authority) or to supplementary pension schemes, and are considered as “defined-contribution plans”. These amounts therefore do not require actuarial valuation and are no longer booked to the “Provision for employment termination indemnities”. The “Provision for employment termination indemnities” accruing up to December 31, 2006 is still a “defined-benefit plan”, consequently requiring actuarial valuation, which however will no longer take account of the component relating to future wage inflation.
In accordance with the IAS 19, for companies with less than 50 employees (Holding Company Sogefi S.p.A.) the provision is entirely accounted for as a “Definite-benefit plan” and is subject to actuarial valuation.

The assumptions taken into consideration when carrying out the actuarial valuation of the “Provision for employment termination indemnities” were as follows:

  • Macroeconomic assumptions:
  1. annual discount rate (IBoxx Eurozone Corporate AA Index): 1.39% (0.91% as at December 31, 2014)
  2. annual inflation rate: 1.5% for 2016, 1.8% for 2017, 1.8% for 2017, 1.7% for 2018, 1.6% for 2019 and 2% from 2020 onward (as at December 31, 2014: 0.6% for 2015, 1.2% for 2016, 1.5% for 2017 and 2018, and 2% from 2019 onward)
  3. annual increase in termination indemnity: 2.625% for 2015, 2.85% for 2017, 2.775% for 2018, 2.7% for 2019 and 3.0% from 2020 onward (as at December 31, 2014: 1.95% for 2015, 2.4% for 2016, 2.625% for 2017 and 2018, and 3% from 2019 onward)
  • Demographic assumptions:
  1. rate of voluntary resignations: 3% - 10% of the workforce (same assumptions adopted as of December 31, 2014);
  2. retirement age: it was assumed that employees would reach the first of the requirements valid for mandatory general social security (same assumptions adopted as of December 31, 2014);
  3. probability of death: the RG48 mortality tables produced by the General State Accounting Body were used (same assumptions adopted as of December 31, 2014);
  4. probability of advanced settlement: an annual value of 2% - 3% each year was assumed (same assumptions adopted as of December 31, 2014);
  5. INPS' table split by age and gender was used for the probability of disability (same assumptions adopted as of December 31, 2014).

The provision changed as follows during the period:

(in thousands of Euro) 12.31.2015 12.31.2014
Opening balance 8,405 7,685
Accruals for the period (162) 309
Amounts recognised in "Other Comprehensive Income" (351) 631
Contributions paid (1,576) (220)
TOTAL 6,316 8,405

 

The amounts charged to the Income Statement can be summarised as follows:

(in thousands of Euro) 2015 2014
Current service cost 117 120
Curtailment (345) -
Financial charges 66 189
TOTAL (162) 309

 

Item “Curtailment” includes an adjustment of Euro 345 thousand made to the provision booked in the previous years.

Average bond duration as of December 31, 2015 is approximately 8 years.

The sensitivity analysis of the provision for employment termination indemnities is outlined below: The table below shows the changes in the provision triggered by changes in the following actuarial assumptions:

  • Discount rate
  • Wage inflation
(in thousands of Euro) 12.31.2015
  +0.5% -0.5%
Discount rate (211) 223
Rate of salary increase 4 (4)

 

Provision for restructuring

These are amounts set aside for restructuring operations that have been officially announced and communicated to those concerned, as required by IAS/IFRS.

The provision changed as follows during the period:

(in thousands of Euro) 12.31.2015 12.31.2014
Opening balance 19,296 16,870
Accruals for the period 1,535 11,132
Utilisations (14,438) (7,289)
Provisions not used during the period (440) (1,138)
Other changes (373) (208)
Exchange differences (386) (71)
TOTAL 5,194 19,296

 

“Utilisations” (booked as reductions of provisions previously accrued provisions) relate nearly entirely to the French subsidiaries Filtrauto S.A. and Allevard Rejna Autosupensions S.A. and to subsidiary Sogefi Filtration do Brasil Ltda.

Changes in “Accruals for the period” net of the “Provisions not used during the period” (amounts set aside during previous years in excess of amounts actually paid), total Euro 1,095 thousand; this figure is booked to the Income Statement under “Restructuring costs”.

“Other changes” reflect a reclassification to provision for “Lawsuits”.

Provisions for disputes with tax authorities

This refers to tax disputes under way with local European and South American tax authorities, for which the appropriate provisions have been made, even though the final outcome is not yet certain.

The provision changed as follows during the period:

(in thousands of Euro) 12.31.2015 12.31.2014
Opening balance 2,179 878
Accruals for the period 70 1,430
Utilisations (1,482) (117)
Provisions not used during the period (500) -
Exchange differences (65) (12)
TOTAL 202 2,179

 

“Utilisations” for the year mainly relate to subsidiary Systèmes Moteurs S.A.S. as a result of the settlement of a dispute dating back to the 2009-2011 period.

The “Provisions not used during the period” relate to amounts accrued during previous years by the European subsidiaries in excess of amounts actually paid.

Provision for phantom stock options

The provision for Phantom Stock Options refers to the fair value measurement of options related to Phantom Stock Option 2007 incentive plan, still in existence, for the Director who filled the post of Managing Director when the plan was issued. The variation of the fair value, negative by Euro 8 thousand, was recognised in the income statement, in item “Directors' and statutory auditors' remuneration” in 2015.

Provision for product warranties

The provision changed as follows during the period:

(in thousands of Euro) 12.31.2015 12.31.2014
Opening balance 25,874 22,538
Accruals for the period 16,520 5,810
Utilisations (18,739) (2,658)
Provisions not used during the period (17) (85)
Other changes (18) 261
Exchange differences (362) 8
TOTAL 23,258 25,874

 

The item reflects for the most part liabilities connected with product warranty risks of the Systèmes Moteurs Group.
The item also includes minor provisions for product warranties by Group companies and allocations made to provision for specific risks relating to employees and third parties.

With regard to provision for product warranties, there are claims in progress by two customers relating to a defective component supplied by subsidiary Systèmes Moteurs S.A.S. starting from 2010 before and partly after the subsidiary was acquired by the Sogefi Group. The Company believes that the defect was caused by a thermostat manufactured by a supplier of Systèmes Moteurs S.A.S. and in 2012 filed a law suit against that supplier at the French courts seeking indemnity for any damages it might have to pay to its customers.

The court appointed a technical expert to write an expert witness report (expertise) in June 2012. Merit proceedings were suspended pending submission of the expert witness report. The expert established that the defect was caused by the thermostat manufactured by the supplier of Systèmes Moteurs S.A.S..
In 2014, the two customers joined the expertise proceedings and petitioned for their damages to be determined in the expert witness report. Their petition was accepted and the expert's assignment was extended accordingly.
Previously, both customers had requested an out-of-court settlement for damages. To date, neither customer is involved in any other proceedings. 

The customers claimed Euro 122.8 million in damages, mostly relating to past and future campaigns and Euro 65.9 million for damage to reputation and loss of future income.
Based on existing proceedings, the Company and its legal counsel deem that there is only a remote possibility that a liability will arise from the latter claim.

With regard to the first amount claimed, each claim was broken down by period of production to reflect the associated production costs. According to the Company's estimates, Euro 60.4 million of the 122.8 million claimed relate to the period before Systèmes Moteurs was purchased by the Sogefi Group, and Euro 26.6 million relate to the 7 following months.
The Company has already paid Euro 3 million by issuing debit notes in favour of customers. In addition, the Company paid Euro 18.0 million to the two customers in the first half of 2015. Systèmes Moteurs S.A.S. paid out these amounts to the above mentioned customers on a provisional basis under standstill agreements, without any admission of liability. Such amounts will be adjusted or partly refunded as required when the Court decides on the merits of the case.

As of June 30, 2015, according to general prudence principles, the Company decided to set aside an additional provision of Euro 11.8 million for product warranties. This amount was reviewed in light of the latest developments at the end of 2015. The Company believes that this provision is still adequate.

With regard to the indemnities owed by the seller of Systèmes Moteurs S.A.S. shares, it is worthwhile pointing out that the Sogefi Group entered an indemnification asset totalling Euro 23.4 million in the Consolidated Financial Statements in 2011, because the seller Dayco Europe S.r.l. had provided contractual guarantees relating to defect liability claims existing at the time of the acquisition, including those noted above.
As of December 31, 2015, such indemnification asset has been valued according to IFRS 3.57, and is still believed to be recoverable based on the contractual guarantees given by the seller and the considerations outlined above.
The Sogefi Group has not booked any such assets after 2011.
Sogefi S.p.A. initiated international arbitration proceedings against the seller of Systèmes Moteurs S.A.S.' shares to recover the costs incurred after the Systèmes Moteurs S.A.S. acquisition date, as provided for by the acquisition contract. An arbitration award is expected during the first half of 2016.

It should be noted that these are complex proceedings that involve passing judgement on technical, juridical and commercial matters, and present uncertainties connected with the outcome of the proceedings before the French courts and the arbitration award. Estimates concerning risks provision and the recovery of booked assets are based on the best information available at the time of preparing the financial statements. They are subject to change as events evolve.

Supplementary indemnity reserves for agents and Lawsuits

The provisions changed as follows during the period:

(in thousands of Euro) 12.31.2014
  Agent's termination indemnities Lawsuits
Opening balance 96 985
Accruals for the period 6 502
Utilisations - (114)
Provisions not used during the period - (24)
Other changes - (228)
Exchange differences - (12)
TOTAL 102 1,109
(in thousands of Euro) 12.31.2015
  Agent's termination indemnities Lawsuits
Opening balance 102 1,109
Accruals for the period - 976
Utilisations - (392)
Provisions not used during the period (98) (284)
Other changes - 373
Exchange differences - (124)
TOTAL 4 1,658

Amounts stated in the financial statements represent the best possible estimates of liabilities at year-end date.
Item “Lawsuits” includes litigation with employees and third parties. The allocation of Euro 976 thousand mainly relates to subsidiary Filtrauto S.A. for disputes with employees.

Other payables

“Other payables” amount to Euro 9,195 thousand (Euro 6,988 thousand as of December 31, 2014). The increase in the item mainly relates to subsidiary Systèmes Moteurs S.A.S. and reflects costs incurred in research and development projects charged back to customers that will be accounted for as revenue over the life of the project starting at the time capitalised R&D costs are depreciated.
The item includes Euro 6,882 thousand (Euro 6,765 thousand as at December 31, 2014) which reflect the fair value of the liability associated with the exercise price of the put option held by non-controlling shareholders of subsidiary Sogefi M.N.R. Engine Systems India Pvt Ltd with reference to 30% of the share capital of the company resulting from the merger between Sogefi M.N.R. and subsidiary Systèmes Moteurs India Pvt Ltd. The option may be exercised after December 31, 2016. The fair value of such liability represents a reasonable estimate of the option exercise price, and was determined using the method that involves discounted cash flows method, based on the cash flows of the 2016 budget and the projections for 2017-2019 of the affected subsidiary. A discount rate of 16.06% was applied and terminal value was calculated using the “perpetual annuity” approach, assuming a growth rate of 7.6%, consistently with the sector performance in the Indian market.
Discount rate was calculated based on weighted average cost of capital and the following parameters (extrapolated from the main financial sources):

  • financial structure of the industry: 17.1% (the same as the one used in the impairment test)
  • levered beta of the industry: 1.12 (the same as the one used in the impairment test)
  • risk-free rate: 7.75% (annual average of risk free rates of 10-year Indian securities)
  • risk premium: 8.4%

DEFERRED TAX ASSETS AND LIABILITIES

The following details of deferred tax assets and liabilities are provided in light of the IAS/IFRS disclosure requirements.

(in thousands of Euro) 12.31.2015 12.31.2014
  Amount of temporary differences Tax effect Amount of temporary differences Tax effect
Deferred tax assets:        
Allowance for doubtful accounts 2,552 721 3,273 942
Fixed assets amortisation/writedowns 31,744 9,212 31,329 9,750
Inventory writedowns 4,421 1,466 5,645 1,865
Provisions for restructuring 882 291 9,383 3,169
Other provisions - Other payables 78,819 24,454 77,326 23,409
Fair value derivative financial instruments 11,473 2,754 16,299 4,483
Other 12,371 3,797 17,851 5,669
Deferred tax assets for tax losses incurred during the year 5,962 2,009 17,563 4,944
Deferred tax assets for tax losses incurred during previous years 66,338 20,597 53,009 16,895
TOTAL 214,562 65,301 231,678 71,126
Deferred tax liabilities:        
Accelerated/excess depreciation and amortisation 68,490 18,704 72,637 20,119
Difference in inventory valuation methods 622 155 758 204
Capitalisation of R&D costs 44,785 14,968 46,955 15,796
Other 27,044 2,437 32,666 2,745
TOTAL 140,941 36,264 153,016 38,864
Deferred tax assets (liabilities) net   29,037   32,262
Temporary differences excluded from the calculation of deferred tax assets (liabilities):
Tax losses carried forward 100,779 32,532 88,670 28,223

 

The tax effect has been calculated on the basis of the rates applicable in the various countries, which are in line with those of the previous year, except for the tax rate applicable to UK subsidiaries, which decreased from 20% to 19%, and that applicable to Italian companies, which decreased from 27.5% to 24% for deferred tax expected to be reversed starting in 2017.

The decrease in “Deferred tax assets (liabilities), net” compared with December 31, 2014 amounts to Euro 3,225 thousand and differs by Euro 2,920 thousand from the amount shown in the Income Statement under “Income taxes – Deferred tax liabilities (assets)” (Euro 305 thousand) due to:

  • movements in financial items that did not have any effect on the income statement and therefore the related negative tax effect amounting to Euro 3,583 thousand has been accounted for as Other comprehensive income (expenses) (negative effect of the fair value of derivatives designated as cash flow hedges was Euro 1,731 thousand; negative effect of actuarial gains/losses arising from the adoption of the IAS 19 was Euro 1,852 thousand);
  • negative effect of tax losses of previous years reclassified from deferred tax assets to amounts receivable from CIR for Euro 514 thousand (without any impact on the consolidated income statement); this amount reflects the share of tax losses for the year 2014 offset by taxable income generated in 2015 by the CIR Group tax filing system that the Company has joined);
  • exchange differences with a positive effect of Euro 1,177 thousand.

The decrease in the tax effect relating to item “Provisions for restructuring” mainly arises from the outlay of amounts previously accrued to provisions for restructuring at subsidiary Filtrauto S.A..

The increase in the tax effect relating to item “Other provisions - Other payables” mostly originates from an increase in the liabilities associated with provisions for product warranty risks.

The decrease in the tax effect relating to item “Fair value of derivatives” mainly relates to the Holding Company Sogefi S.p.A. and reflects the increased fair value of CCS contracts as well as the portion of reserve previously booked to Other comprehensive income relating to IRS contracts no longer designated for hedge accounting recognised in Income Statement.

Item “Other” of deferred tax assets includes various types of items, such as for example costs for which tax deduction is deferred (for example, amounts allocated to remuneration accrued in 2015 not yet paid).

“Deferred tax assets for tax losses incurred during the year” relate to the following companies:

  • French subsidiaries Allevard Rejna Autosuspensions S.A. for Euro 887 thousand, Systèmes Moteurs S.A.S. for Euro 478 thousand and Filtrauto S.A. for Euro 529 thousand. These taxes were recognised because it is believed to be probable that taxable income will be available in the future against which such tax losses can be utilised;
  • subsidiary Sogefi Filtration S.A. for Euro 115 thousand. These taxes were recognised because it is believed to be probable that taxable income will be available in the future against which such tax losses can be utilised.

“Deferred tax assets for tax losses incurred during the year” relate to the Holding Company Sogefi S.p.A. (Euro 3,495 thousand, Euro 4,261 thousand as of December 31, 2014) and to subsidiaries Sogefi Rejna S.p.A. (Euro 49 thousand, accrued in 2014), Allevard Sogefi U.S.A. Inc. (Euro 8,615 thousand; Euro 7,725 thousand as of December 31, 2014: the increase in the amount is due to the effect of exchange rates - the amount in USD is unchanged from 2014, as the deferred tax assets utilised after the positive result in 2015 were compensated for by new deferred tax assets on losses in previous years), Allevard Rejna Autosupensions S.A. (Euro 3,356 thousand; unchanged compared to December 31, 2014), Sogefi Filtration Ltd (Euro 1,737 thousand; Euro 2,284 thousand as of December 31, 2014), Sogefi Filtration S.A. (Euro 2,081 thousand; Euro 2,111 thousand as of December 31, 2014), United Springs S.A.S. (Euro 717 thousand; Euro 872 thousand as of December 31, 2014) and Systèmes Moteurs S.A.S. (Euro 547 thousand, unchanged compared to December 31, 2014). These taxes were recognised because it is believed to be probable that taxable income will be available in the future against which such tax losses can be utilised. Such probability is determined based on the fact that losses have originated under extraordinary circumstances that are unlikely to occur again, such as restructuring plans currently under way or occurred in the past. It should also be noted that the losses incurred by the UK and the Spain subsidiaries can be carried forward indefinitely. The losses of the French subsidiaries can be carried forward indefinitely but the new law passed in 2012 has maintained a limit for the amount that can be utilised each year, making recovery time longer. The losses of the US subsidiary can be carried forward over a period of up to 20 years since they were incurred. The losses of the Holding Company Sogefi S.p.A. and of subsidiary Sogefi Rejna S.p.A. are likely to be recovered taking into account that the companies have joined the CIR Group tax filing system in the past.

Note that the deferred tax assets relating to the “Allowance for doubtful accounts” and to the “Inventory writedowns” include amounts that will mainly be reversed in the twelve months following year end.

Column “Amount of temporary differences” of item “Other” of deferred tax liabilities includes: Euro 21,375 thousand relating to dividends expected to be paid to the French and Canadian subsidiaries in the short term, subject to a 3% and 5% tax rate, respectively, at the time payment; Euro 1,846 thousand relating to the taxed portion of dividends expected to be paid to the French subsidiaries and the Holding Company Sogefi S.p.A. in the short term; other minor items for Euro 3,823 thousand.

As regards the figures shown under "Temporary differences excluded from the calculation of deferred tax assets (liabilities)", deferred tax assets were not booked as, at year end, there was not a probability that they would be recovered. “Tax losses carried forward” mainly relate to subsidiaries Allevard Sogefi U.S.A. Inc. (down from the previous year after they were offset against the positive result of 2015), Allevard Rejna Autosupensions S.A. (portion of losses not recognised in deferred tax assets because it can not be recovered in the specific period of the company's long-term plan), Sogefi Filtration Ltd (portion of losses not recognised in deferred tax assets because it can not be recovered in the specific period of the company's long-term plan), Sogefi Filtration do Brasil Ltda, Allevard Rejna Argentina S.A., S. ARA Composite S.A.S., Chinese and Indian subsidiaries.

Please note that the deferred tax assets recognised in the previous years by subsidiaries Sogefi Filtration do Brasil Ltda and Allevard Rejna Argentina S.A. were written down (for an amount of approximately Euro 2,900 thousand) in 2015 as they are deemed to be no longer recoverable because of the deteriorated macroeconomic local context.

SHARE CAPITAL AND RESERVES

Share capital

The share capital of the Holding Company Sogefi S.p.A. is fully paid in and amounts to Euro 61,681 thousand as of December 31, 2015 (Euro 61,631 thousand as of December 31, 2014), split into 118,618,055 ordinary shares with a par value of Euro 0.52 each.

Share capital increased from Euro 61,631 thousand (split into 118,521,055 shares) to Euro 61,681 thousand (split into 11,618,055 shares) in 2015. All ordinary shares are fully paid up. No shares are encumbered by rights, liens or limitations relating to dividend distribution.

As of December 31, 2015, the Company has 3,252,144 treasury shares in its portfolio, corresponding to 2.74% of share capital.

Movements in the shares outstanding are as follows:

(Shares outstanding) 2015 2014
No. shares at start of period 118,521,055 117,222,292
No. shares issued for subscription of stock options 97,000 1,298,763
No. of ordinary shares as of December 31 118,618,055 118,521,055
No. shares issued for subscription of stock options booked to "Other reserves" at December 31, 2013 - -
Treasury shares (3,252,144) (3,430,133)
No. of shares outstanding as of December 31 115,365,911 115,090,922

 

The following table shows the changes in the Group’s equity:

(in thousands of Euro) Share capital Share premium reserve Reserve for treasury shares Treasury shares Translation reserve Legal reserve Cash flow hedging reserve Sharebased incentive plans reserve Actuarial gain/loss reserve Tax on items booked in Other Comprehensive Income Other reserves Retained earnings Net result for the period Total
Balance at December 31, 2013 60,924 11,720 8,952 (8,592) 12,320 4,603 (27,660) (16,788) (15,255) 8,002 3,237 106,260 21,124 168,487
Paid share capital increase 707 1,942 - - - - - - - - (126) - - 2,523

Allocation of 2013 net profit:

Legal reserve

Dividends

Retained earnings

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

 

-

-

-

 

 

-

-

21,124

 

 

-

-

(21,124)

 

 

-

-

-

Recognition of share-based incentive plans - - - - - 852 - - - - - - - 852
Other changes - 761 (761) 761 - (724) - - - - - (3,078) - (3,041)
Fair value measurement of cash flow hedging instruments: share booked to OCI - - - - - - - (9,413) - - - - - 9,413
Fair value measurement of cash flow hedging instruments: share booked to income statement - - - - - - - 9,603 - - - - - 9,603
Actuarial gain/loss - - - - - - - - (21,964) - - - - (21,964)
Tax on items booked in Other Comprehensive Income - - - - - - - - - 4,146 - - - 4,146
Currency translation differences - - - - - - 6,116 - - - - - - 6,116
Net result for the period - - - - - - - - - - - - 3,639 3,639
Balance at December 31, 2014 61,631 14,423 7,831 (7,831) 12,340 4,731 (21,544) (16,598) (36,949) 12,148 3,111 124,286 3,639 161,218
Paid share capital increase 50 95 - - - - - - - - - - - 145

Allocation of 2014 net profit:

Legal reserve

Dividends

Retained earnings

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

300

-

-

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

(300)

-

3,639

 

 

-

-

(3,693)

 

 

-

-

-

Recognition of share-based incentive plans - - - - - 642 - - - - - - - 642
Fair value measurement of embedded derivative (conversion option) - - - - - - - - - - 9,090 - - 9,090
Other changes - 406 (406) 406 - (712) - - - - - 202 - (104)
Fair value measurement of cash flow hedging instruments: share booked to OCI - - - - - - - 1,336 - - - - - 1,336
Fair value measurement of cash flow hedging instruments: share booked to income statement - - - - - - - 3,495 - - - - - 3,495
Actuarial gain/loss - - - - - - - - 7,527 - - - - 7,527
Tax on items booked in Other Comprehensive Income - - - - - - - - - (3,583) - - - (3,583)
Currency translation differences - - - - - - (10,043) - - - - - - (10.043)
Net result for the period - - - - - - - - - - - - 1.120 1.120
Balance at December 31, 2014 61,681 14,924 7,425 (7,425) 12,640 4,661 (31,587) (11,767) (29,422) 8,565 12,201 127,827 1,120 170,843

 

Share premium reserve

It amounts to Euro 14,924 thousand compared with Euro 14,423 thousand in the previous year.
The increase by Euro 95 thousand accounts for share subscriptions under stock option plans.
In 2015, the Holding Company Sogefi S.p.A. credited Euro 406 thousand to the Share premium reserve after the free grant of 177,989 treasury shares to 2011, 2012 and 2013 Stock Grant beneficiaries.

Treasury shares

Item “Treasury shares” reflects the purchase price of treasury shares. Movements during the year amount to Euro 406 thousand and reflect the free grant of 177,989 treasury shares as reported in the note to “Stock-based incentive plans reserve”.

Translation reserve

This reserve is used to record the exchange differences arising on the translation of foreign subsidiaries' financial statements.
Movements in the period show a decrease of Euro 10,043 thousand mainly attributable to the depreciation of Argentine peso, Brazilian real and Canadian dollar against the Euro.

Reserve for actuarial gains/losses

This reserve reflects the net impact of the application of the amendment to IAS 19 “Employee Benefits” on other actuarial gains (losses) as at January 1, 2012. The item also includes actuarial gains and losses accrued after January 1, 2012 and recognised under Other Comprehensive Income.

Cash flow hedging reserve

This reserve has changed as a result of accounting for the cash flows deriving from instruments that for IAS 39 purposes are designated as “cash flow hedging instruments”. Changes during the period show an increase of Euro 4,831 thousand which breaks down as follows:

  • increase of Euro 1,901 thousand as a consequence of the change after December 31, 2014 in the fair value of the existing effective hedging contracts;
  • increase of Euro 2,930 thousand reflecting the portion of reserve relating to contracts no longer in hedge accounting that will be recognised in the Income Statement over the same period of time as the differentials relating to the underlying hedged item.

Stock-based incentive plans reserve

The reserve refers to credit to equity for stock-based incentive plans, assigned to Directors, employees and co-workers, resolved after November 7, 2002, including the portion relating to the stock grant plan approved in 2015.
In 2015, further to Stock Grant Plan beneficiaries exercising their rights and due to the corresponding free grant of 177,989 treasury shares, the amount of Euro 393 thousand, corresponding to the fair value at right (Unit) allocation date, was reclassified from “Stock- based incentive plans reserve” increasing the “Share premium reserve” (for Euro 406 thousand) and decreasing “Retained earnings reserve” (for Euro 13 thousand).
In 2015, the amount of Euro 319 thousand was reclassified in “Retained earnings reserve” after stock option plans expired and the 2011 stock grant plan was cancelled because the Performance Units did not meet market conditions.
While the increase by Euro 642 thousand refers to the cost of accruing plans.

Other reserves

This item amounts to Euro 12,201 thousand (Euro 3,111 thousand as of December 31, 2014).

Upon the decision of the Board of Directors of January 19, 2015 and the execution of a formal waiver (Deed Poll), subject to the British law, on January 28, 2015 (notified to the agent on January 29, 2015), the Holding Company Sogefi S.p.A. has unilaterally waived its right to refund the convertible bonds in cash rather than ordinary shares in case of the conversion right being exercised under the bond issue regulations. This waiver is final, unconditional and irrevocable. The matter of the waiver to this right has a similar effect, under the British law, to an amendment to the bond issue regulations. The Holding Company Sogefi S.p.A. reviewed the liability-equity classification of the option made upon initial recognition of the option (because the call option rights granted to the Company were waived irrevocably, finally and unconditionally). As a result, the Holding Company Sogefi S.p.A. reclassified the fair value of the option of Euro 9,090 thousand (calculated based on the same model applied on December 31, 2014) from “Other medium/long-term liabilities for derivative financial instruments” to "Other reserves – convertible debt equity components".

Retained earnings

These totalled Euro 127,827 thousand and include amounts of profit that have not been distributed.
The increase of Euro 202 thousand refers to the following events:

  • the interest held by subsidiary Allevard Rejna Autosuspensions S.A. in subsidiary Allevard IAI Suspensions Pvt Ltd. increased from 73.91% to 74.23% through a share capital increase not subscribed by non-controlling interests that led to an amount of Euro 7 thousand being reclassified between non-controlling interests and Group's shareholders' equity;
  • the interest held by subsidiary Allevard Rejna Autosuspensions S.A. in S.ARA Composite S.A.S. increased from 95% to 90.91% through a share capital increase not subscribed by non-controlling interests that led to an amount of Euro 97 thousand being reclassified between non-controlling interests and Group's shareholders' equity;
  • reclassification of the above mentioned "Stock-based incentive plans reserve" as outlined above (Euro 306 thousand).

Tax on items booked in Other Comprehensive Income

The table below shows the amount of income taxes relating to each item of Other Comprehensive Income:

(in thousands of Euro) 2015 2014
  Gross value Taxes Net value Gross value Taxes Net value
- Profit (loss) booked to cash flow hedging reserve 4,831 (1,731) 3,100 190 5,316 5,506
- Actuarial gain (loss) 7,527 (1,852) 5,675 (21,698) (1,170) (22,868)
- Profit (loss) booked to translation reserve (9,834) - (9,348) 6,837 - 6,837
- Total Profit (loss) booked in Other Comprehensive Income 2,524 (3,583) (1,059) (14,671) 4,146 (10,525)

 

Tax-related restrictions applicable to certain provisions

The equity of Holding Company Sogefi S.p.A. includes Reserves under tax suspension and its share capital is subject to constraints under tax suspension after revaluation reserves were utilised in the past, for a total amount of Euro 24,164 thousand.
The Holding Company has made no allocations for deferred tax liabilities to such reserves, that, if distributed, would count towards taxable income of the Company, because it is not deemed likely that they will be distributed.

Non-controlling interests

The balance amounts to Euro 19,553 thousand and refers to the portion of shareholders' equity attributable to non-controlling interests.

The reserve increased by Euro 104 thousand during the year (decrease is booked to “Other changes” in the “Consolidated Statement of Changes in Equity”) traced back to the above mentioned changes in the interest held in subsidiaries S.ARA Composite S.A.S. (Euro 97 thousand) and Allevard IAI Suspensions Pvt Ltd. (Euro 7 thousand).

Details of non-controlling interests are given below:

(in thousands of Euro)   % owned by third parties Loss (profit) attributable to non-controlling interests Shareholders' equity attributable to non-controlling
Subsidiary's name Region 12.31.2015 12.31.2014 12.31.2015 12.31.2014 12.31.2015 12.31.2014
S.ARA Composite S.A.S. France 5.00% 6.29% (159) (116)

463

524
Iberica de Suspensiones S.L. Spain 50.00% 50.00% 4,239 4,103 15,557 15,417
Shanghai Allevard Spring Co., Ltd China 39.42% 39.42% (74) 209 3,003 3,138
Allevard IAI Suspension Pvt Ltd India 25.77% 26.09% (80) (136) 461 425
Sogefi M.N.R. Filtration India Pvt Ltd India 30.00% 40.00% - 696 - -
Other   0.12% 0.12% 5 - 69 64
TOTAL       3,931 4,756 19,553 19,568

As required by IFRS 12, an overview of the key financial indicators of the companies showing significant non-controlling interests:

  Shanghai Allevard Spring Co., Ltd Iberica de Suspensiones S.L. Sogefi M.N.R. Filtration India Pvt Ltd
(in thousands of Euro) 12.31.2015 12.31.2014 12.31.2015 12.31.2014 12.31.2015 12.31.2014
Current assets 5,380 5,635 35,232 33,412 21,304 13,398
Non-current assets 3,667 3,729 9,060 9,767 13,211 10,629
Current Liabilities 1,150 1,129 12,302 12,169 15,990 10,969
Non-current Liabilities - - 877 174 4,315 3,183
Shareholders' equity attributable to the Holding 4,894 5,097 15,557 15,418 17,995 5,918
Non-controlling interests 3,003 3,138 15,557 15,417 - 3,945
  - - - - - -
Sales Revenue 4,175 6,189 68,685 64,331 37,790 27,064
Variable cost of sales 2,462 3,626 41,223 38,638 26,262 18,732
Other variable costs of sales 272 423 4,706 3,940 1,009 713
Fixed expenses 1,570 1,445 10,693 10,568 5,439 4,011
Non-operating expenses (income) 28 20 805 246 678 103
Income taxes 29 145 2,779 2,731 (3) 955
Income (loss) for the period (186) 530 8,479 8,208 4,405 2,550
             
Income (loss) attributable to the Holding Company (113) 320 4,240 4,104 3,739 1,286
Income (loss) attributable to the non-controlling (74) 209 4,239 4,103 - 696
Income (loss) for the period (187) 529 8,479 8,207 3,739 1,982
             
OCI attributable to the Holding Company 279 483 - - (3,239) 557
OCI attributable to non-controlling 181 314 - - - 364
OCI for the period 460 797 - - (3,239) 403
             
Total income (losses) attributable to the Holding 166 803 4,240 4,104 500 1,843
Total income (losses) attributable to non-controlling 107 523 4,239 4,103 - 1,060
Total income (losses) for the period 273 1,326 8,479 8,207 500 2,385
             
Dividends paid to non-controlling interests 241 97 4,100 2,500 - -
             
Net cash inflow (out flow) from operating activities 881 1,200 11,645 10,568 3,215 2,964  
Net cash inflow (out flow) from investing activities (84) (316) 1,801 (1,515) (2,818) (3,417)
Net cash inflow (out flow) from financing activities (612) (857) (8,200) (5,000) (221) 181
             
Net cash inflow (out flow) 185 27 5,246 4,053 176 (272)

ANALYSIS OF THE NET FINANCIAL POSITION

The following table provides details of the net financial position as required by Consob in its communication no. DEM/6064293 of July 28, 2006 with a reconciliation of the net financial position shown in the table included in the Report on operations:

(in thousands of Euro) 12.31.2015 12.31.2014
A. Cash 121,892 124,033
B. Other cash at bank and on hand (held to maturity investments) 3,949 6,953
C. Financial instruments held for trading 17 18
D. Liquid funds (A) + (B) + (C) 125,858 131,004
E. Current financial receivables 2,369 2,519
F. Current payables to banks 17,843 13,426
G. Current portion of non-current indebtedness 74,445 64,509
H. Other current financial debts 325 350
I . Current financial indebtedness (F) + (G) + (H) 92,613 78,285
J. Current financial indebtedness, net (I) - (E) - (D) (35,614) (55,238)
K. Non-current payables to banks 141,080 131,617
L. Bonds issued 208,869 194,809
M. Other non-current financial debts 21,110 22,763
N. Convertible bond embedded derivative liability - 10,540
O. Non-current financial indebtedness (K) + (L) + (M) + (N) 371,059 359,729
P. Net indebtedness (J) + (O) 335,445 304,491
     
Non-current financial receivables 13,156 157
Financial indebtedness, net including non-current financial receivables (as per the "Net financial position" included in the Report on operations) 322,289 304,334

 

Details of the covenants applying to loans outstanding at year end are as follows (see note 16 for further details on loans):

  • loan of Euro 60,000 thousand from Intesa Sanpaolo S.p.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5;
  • loan of Euro 15,000 thousand from Banco do Brasil S.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
  • loan of Euro 20,000 thousand from Mediobanca S.p.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
  • loan of Euro 50,000 thousand from Unicredit S.p.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
  • loan of Euro 55,000 thousand from BNP Paribas S.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
  • loan of Euro 30,000 thousand from Société Générale S.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
  • loan of Euro 20,000 thousand from Mediobanca S.p.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
  • loan of Euro 30,000 thousand from Ing Bank N.V.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
  • bond issue of USD 115,000 thousand: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
  • bond issue of Euro 25,000 thousand: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4.

As of December 31, 2015, the Company was in compliance with these covenants.

SALES REVENUES

Revenues from sales and services

The Sogefi Group recorded revenues for Euro 1.5 billion, up 11.1% (+9.1% exchange rates being equal) thanks to the positive performance of all business units and all geographical areas except for Latin America.

Revenues from the sale of goods and services are as follows:

(in thousands of Euro) 2015 2014
  Amount % Amount %
Air&Cooling 409,281 27.3 374,312 27.7
Suspension 558,015 37.2 506,609 37.5
Filtration 536,443 35.8 473,724 35.2
Intercompany eliminations (4,689) (0.3) (5,254) (0.4)
TOTAL 1,499,050 100.0 1,349,391 100.0

In 2015, all business units achieved significant revenue growth. Suspensions sales increased by 10.1% (+9.2% exchange rates being equal) over the previous year, as they benefited from a positive turn in car-related business in Europe and a growing market share in South America.
The sales of the Filtration business unit increased by 13.2% (+10% exchange rates being equal) during 2015, driven by growth in North America and by the original equipment business in Europe.
The sales of the Air&Cooling business unit grew by 9.3% over 2014 (+7.5% exchange rates being equal), boosted by the increased market share in North America.

By geographical area of "destination":

(in thousands of Euro) 2015 2014
  Amount % Amount %
Europe 943,796 63.0 872,100 64.4
Mercosur 174,487 11.6 181,362 13.5
Nafta 264,120 17.6 207,331 15.4
Asia 111,135 7.4 82,662 6.1
Rest of the World 5,512 0.4 5,936 0.4
TOTAL 1,499,050 100.0 1,349,391 100.0

The impact of non-European countries on total revenues rose to 37% in 2015 (35.4% in 2014), up 1.6 percentage points thanks to the good performance in North America and Asia, which more than compensated for the sluggish performance of South American markets.
Market recovery in Europe – Sogefi's largest market – propelled revenues by 8.2% in 2015, thanks to the positive performance of all business areas.
Sogefi recorded better market performance in North America thanks to its positioning towards local auto makers.
In South America, revenues for the year dropped by 3.8% (+2.8% exchange rates being equal) in spite of a 20.5% downturn in the market, thanks to the positive contribution of the Suspensions business.
In 2015, revenues in Asia increased by 34.4% (18.7% exchange rates being equal).

VARIABLE COST OF SALES

Details are as follows:

(in thousands of Euro) 2015 2014
Materials 805,668 719,564
Direct labour cost (*) 123,118 112,898
Energy costs 38,163 35,775
Sub-contracted work 37,591 26,357
Ancillary materials 20,338 18,454
Variable sales and distribution costs (*) 50,655 43,250
Royalties paid to third parties on sales 5,223 4,453
Other variable costs (1,627) (732)
TOTAL 1,079,129 960,019

(*) The reclassification of certain cost items was reviewed in 2015. The following 2014 balances were reclassified to allow for a comparison:

  • Euro 5,400 thousand were reclassified from “Variable sales and distribution costs” to “Other non-operating expenses (income)” reflecting an allocation made to Provision for product warranties;
  • Euro 1,393 thousand were reclassified from “Direct labour cost” to “Labour cost” of item “Manufacturing and R&D overheads”; Euro 389 thousand were reclassified from “Direct labour cost” to “Labour cost” of item “Distribution and sales fixed expenses” after the allocation between overheads and variable costs was reviewed.

Pressure on margins increased during 2015, and this enhanced the impact of variable costs on sales revenues, which rose from 71.1% in 2014 to 72% in 2015.

“Other variable costs” represent the effect generated by direct labour cost and fixed cost associated with the increase in the inventory of finished goods or semi-finished products.

MANUFACTURING AND R&D OVERHEADS

These can be broken down as follows:

(in thousands of Euro) 2015 2014
Labour cost (*) 108,965 104,060
Materials, maintenance and repairs 31,050 27,044
Rental and hire charges 10,189 9,301
Personnel services 8,506 7,544
Technical consulting 7,157 4,360
Sub-contracted work 1,674 2,215
Insurance 2,862 2,531
Utilities 4,779 4,207
Capitalisation of internal construction costs (28,596) (31,562)
Other (541) (906)
TOTAL 146,045 128,794

(*) The reclassification of certain cost items was reviewed in 2015. The following 2014 balances were reclassified to allow for a comparison:

  • Euro 1,393 thousand were reclassified from “Direct labour cost” of item “Variable cost of sales” to “Labour cost” after the allocation between overheads and variable costs was reviewed.

“Manufacturing and R&D overheads” show an increase of Euro 17,251 thousand. Exchange rates being equal, this item would have increased by Euro 15,404 thousand.

The most significant changes are discussed below:

The increase by Euro 4,905 thousand in “Labour cost” is mainly traced back to the following factors:

  • increase of approximately Euro 1,780 thousand for subsidiary Systèmes Moteurs S.A.S. as a result of an increase in workforce due to new Research and Development projects;
  • increase of approximately Euro 1,162 thousand for the Chinese subsidiary Sogefi (Suzhou) Auto Parts Co. Ltd mainly due to business growth;
  • increase of approximately Euro 965 thousand in the costs incurred by the US subsidiary Sogefi Engine Systems USA, Inc due to an increase in workforce due to new research and development projects.

“Materials, maintenance and repairs” grew by Euro 4,006 thousand, mainly pertaining to subsidiary Systèmes Moteurs S.A.S, the European subsidiaries of the Suspensions business unit and subsidiary Allevard Rejna Argentina S.A..

“Rental and hire charges” increased by Euro 888 thousand. This increase is mainly due to subsidiary Sogefi Filtration do Brasil Ltda relocating production to a new plant and still paying the rent for the old plant for a certain period of time.

“Personnel services” increased by Euro 962 thousand mainly in the subsidiaries Systèmes Moteurs S.A.S, Sogefi Filtration d.o.o. and Sogefi (Suzhou) Auto Parts Co. Ltd.

“Technical consulting” grew by Euro 2,797 thousand for the most part due to increased quality control costs incurred by the French subsidiary Systèmes Moteurs S.A.S..

“Sub-contracted work” decreased by Euro 541 thousand as Research and Development entered into less temporary employment contracts.

“Other” shows a negative balance because it includes the Research and Development grants obtained mainly by the French subsidiaries.

Item “Capitalization of internal construction costs” mainly reflects product development costs capitalised when their future benefit is deemed to be reasonably certain.

Total costs for Research and Development (not reported in the table) excluding capitalization amount to Euro 35,532 thousand (stable at 2.4% of sales).

DEPRECIATION AND AMORTISATION

Details are as follows:

(in thousands of Euro) 2015 2014
Depreciation of tangible fixed assets 37,082 35,328
of which: assets under finance leases 1,200 1,071
Amortisation of intangible assets 27,289 22,675
TOTAL 64,371 58,003

Item “Depreciation and amortisation” amounts to Euro 64,371 thousand and increased by Euro 6,368 thousand compared to the previous year. Exchange rates being equal, the increment would have been Euro 4,953 thousand.

Depreciation of tangible assets amounts to Euro 37,082 thousand, and shows an increase of Euro 1,754 thousand compared to 2014, of which Euro 912 thousand reflect the effect of exchange rates.

Amortisation of intangible assets increased by Euro 4,614 thousand. Exchange rates being equal, it would have increased by Euro 4,041 thousand, of which Euro 933 thousand relate to the amortisation of the new Group information system in the Holding Company Sogefi S.p.A., whereas the remaining portion reflects R&D costs.

DISTRIBUTION AND SALES FIXED EXPENSES

This item is made up of the following main components:

(in thousands of Euro) 2015 2014
Labour cost (*) 27,061 25,318
Sub-contracted work 6,505 5,874
Advertising, publicity and promotion 4,269 3,857
Personnel services 3,263 3,228
Rental and hire charges 1,838 1,775
Consulting 1,160 1,204
Other 1,102 577
TOTAL 45,198 41,833

(*) The reclassification of certain cost items was reviewed in 2015. The following 2014 balances were reclassified to allow for a comparison:

  • Euro 389 thousand were reclassified from “Direct labour cost” of item “Variable cost of sales” to “Labour cost” after the allocation between overheads and variable costs was reviewed.

“Distribution and sales fixed expenses” increased by Euro 3,365 thousand compared to the previous year. Exchange rates being equal, this item would have increased by Euro 2,951 thousand.

The increase by Euro 1,743 thousand in “Labour cost” is mainly traced back to the following factors:

  • increase in the workforce of subsidiary Sogefi Engine Systems USA, Inc.
  • expansion of the sales organisation of French subsidiary Filtrauto S.A..

The increase in items “Sub-contracted work” (by Euro 631 thousand) is connected with an external warehouse taken on lease by subsidiary Systèmes Moteurs S.A.S., Lpdn GmbH and Sogefi (Suzhou) Auto Parts Co., Ltd.

“Advertising, publicity and promotion” increased by Euro 412 thousand due to new advertising campaigns addressed to the aftermarket segment.

Lastly, the item “Other” increased by Euro 525 thousand as subsidiary Sogefi Filtration do Brasil Ltda took an external warehouse on lease for its aftermarket business.

ADMINISTRATIVE AND GENERAL EXPENSES

These can be broken down as follows:

(in thousands of Euro) 2015 2014
Labour cost 38,496 37,712
Personnel services 4,870 5,862
Maintenance and repairs 1,427 1,972
Cleaning and security 1,812 2,007
Consulting 5,699 9,794
Utilities 3,478 3,367
Rental and hire charges 3,903 4,136
Insurance 1,856 1,449
Participation des salaries 524 699
Administrative, financial and tax-related services provided by Parent Company 850 1,350
Audit fees and related expenses 1,622 1,409
Directors' and statutory auditors' remuneration 774 1,612
Sub-contracted work 461 639
Capitalisation of internal construction costs (1,867) (7,204)
Other 8,379 6,151
TOTAL 72,284 70,955

“Administrative and general expenses” increased by Euro 1,329 thousand compared to 2014, which would have been Euro 254 thousand exchange rates being equal.

The increase in “Labour cost”, for the amount of Euro 784 thousand, mainly reflects newly hired workforce in the IT department engaged in the management of IT systems at subsidiary Filtrauto S.A. and an increase in workforce at subsidiary Sogefi Engine Systems USA, Inc.

The decrease in item “Personnel services” for the amount of Euro 992 thousand mainly refers to travel expenses incurred by subsidiaries Filtrauto S.A. and Systèmes Moteurs S.A.S. and by the Holding Company Sogefi S.p.A., also due to the decreased workforce of the Holding Company.

“Maintenance and repairs” decreased by Euro 545 thousand, mainly thanks to lower maintenance costs incurred in the IT departments of subsidiaries Filtrauto S.A. and Allevard Rejna Autosospensions S.A..

The decrease in item “Consulting” by Euro 4,140 thousand mainly refers to the French subsidiary Filtrauto S.A. and reflects a lower level of services by third parties in the IT area as well as lower administrative and fiscal consulting expenses incurred by the Holding Company Sogefi S.p.A. compared to 2014.

The integrated Group information system also resulted in decreased “Capitalization of internal construction costs” – by Euro 5,337 thousand – relating to the Holding Company Sogefi S.p.A. for lower capitalised assets compared to the previous year.

Item “Insurance” increased by Euro 407 thousand, mostly due to Group risk coverage.

Services provided by the parent company CIR S.p.A. amounted to Euro 850 thousand (Euro 1,350 thousand in 2014). As part of its activity, Sogefi S.p.A. makes use of the services provided by CIR S.p.A., its Parent Company, in areas such as strategic development, disposals and acquisitions, and services of an administrative, financial, fiscal and corporate nature.

“Directors' and statutory auditors' remuneration” decreased by Euro 838 thousand; this is mostly traced back to the Holding Company Sogefi S.p.A., that had incurred higher non-recurring expenses when the Director who acted as Managing Director at the date of issue of the relevant plan exercised the 2008 Phantom Stock option plan in 2014.

The increase in “Other” of Euro 2,228 thousand reflects other overheads and administrative costs incurred for the most part by subsidiaries Sogefi Engine Systems USA, Inc. and Filtrauto S.A.. Please note also that the 2014 balance included a benefit arising when a provision for risk of the German subsidiary LDPN GmbH was decreased by Euro 290 thousand.

PERSONNEL COSTS

Personnel

Regardless of their destination, “Personnel costs” as a whole can be broken down as follows:

(in thousands of Euro) 2015 2014
Wages, salaries and contributions 293,194 276,834
Pension costs: defined benefit plans 2,441 1,096
Pension costs: defined contribution plans 2,018 2,026
Participation des salaries 524 699
Imputed cost of stock option and stock grant plans 642 852
Other costs 332 334
TOTAL 299,151 281,841

“Personnel costs” increased by Euro 17,310 thousand (+6.1%) compared to the previous period. Exchange rates being equal, “Personnel costs” would have increased by Euro 13,344 thousand (+4.7%).

The impact of “Personnel costs” on sales revenues falls from 20.9% in the previous year to 19.9% in the current year.

“Wages, salaries and contributions”, “Pension costs: defined benefit plans” and “Pension costs: defined contribution plans” are posted in the tables provided above at lines “Labour cost” and “Administrative and general expenses”.

Participation des salaries” is included in “Administrative and general expenses”.

“Other costs” is included in “Administrative and general expenses”.

“Imputed cost of stock option and stock grant plans” is included in “Other non-operating expenses (income)”. The following paragraph “Personnel benefits” provides details of the stock option and stock grant plans.

The average number of Group employees, broken down by category, is shown in the table below:

(Number of employees) 2015 2014
Managers 99 105
Clerical staff 1,849 1,838
Blue collar workers 4,783 4,840
TOTAL 6,731 6,783

Personnel benefits

Sogefi S.p.A. implements stock-based incentive plans for the Managing Director of the Company and for employees of the Company and of its subsidiaries that hold important positions of responsibility within the Group. The purpose is to foster greater loyalty to the Group and to provide an incentive that will raise their commitment to improving business performance and generating value in the long term.

The stock-based incentive plans of Sogefi S.p.A. are first approved by the Shareholders’ Meeting.

Except as outlined at the following paragraphs “Stock grant plans”, “Stock option plans” and “Phantom stock option plans”, the Group has not carried out any other transaction that involves the purchase of goods or services with payments based on shares or any other kind of instrument representing portions of equity. As a result, it is not necessary to disclose the fair value of such goods or services.

In addition to the plan issued in 2015, The Group has issued plans from 2005 to 2014 of which the main details are provided blow.

Stock grant plans

The stock grant plans provide for the free assignment of conditional rights (called units) that cannot be transferred to third parties or other beneficiaries; each of them entitles to the free assignment of one Sogefi S.p.A. share. There are two categories of rights under these plans: Time-based Units, that vest upon the established terms and Performance Units, that vest upon the established terms provided that shares have achieved the target price value established in the regulation.
The regulation provides for a minimum holding period during which the shares held for the plan can not be disposed of.
All shares assigned under these plans will be treasury shares held by Sogefi S.p.A.. According to the regulation, a pre-condition for assigning the shares is a continued employer-employee relationship or the continued appointment as a director/executive of the Company or one of its subsidiaries throughout the vesting period of the rights.

On October 23, 2015, the Board of Directors executed the 2015 stock grant plan approved by the Shareholders’ Meeting on April 20, 2015 to assign a maximum of 1,500,000 conditional rights, restricted to employees of the Company and its subsidiaries, who were assigned a total of 441,004 Units (190,335 of which were Time-based Units and 250,669 Performance Units).
Time-based Units will vest in tranches on a three-monthly basis, accounting for 12.5% of their respective total, starting on October 20, 2017 and ending on July 20, 2019.
Performance Units will vest at the same vesting dates established for Time-based Units, provided that the increase in price value of Sogefi S.p.A. shares at each vesting date is higher than the increase of the Sector Index (as defined in the Regulation) at that date.

The fair value of the rights assigned during 2015 has been determined at the time the rights were assigned using the binomial option pricing model (so-called Cox, Ross and Rubinstein model) for US options and amounts to Euro 833 thousand overall.

Input data used for measuring the fair value of the 2015 stock grant plan are provided below:

  • curve of EUR/GBP/SEK/CHF-riskless interest rates as of October 23, 2015;
  • prices of the underlying (equal to price of Sogefi S.p.A. share as of October 23, 2015, and equal to Euro 2.206) and of the securities included in the benchmark basket, again as of October 23, 2015;
  • standard prices of Sogefi S.p.A. share and of the securities included in the benchmark basket during the period starting on September 22, 2015 and ending on October 22, 2015 for the determination of the stock grant Performance Units limit;
  • historical volatility rate of stock and exchange rates during 260 days, as of October 23, 2015;
  • null dividend yield for stock grant valuation;
  • historical series of the logarithmic returns of involved securities and EUR/GBP, EUR/SEK and EUR/CHF exchange rates to calculate the correlation among securities and among the three non-EUR denominated securities and associated exchange rates (to adjust for estimated trends), calculated for the period starting on October 23, 2014 and ending on October 23, 2015.

The main characteristics of the stock grant plans approved during previous years and still under way are outlined below:

  • 2011 stock grant plan to assign a maximum of 1,250,000 conditional rights, restricted to the Director who filled the post of Managing Director of the Holding Company at the date of issue of the relevant plan and to employees of the Company and its subsidiaries, who were assigned a total of 757,500 Units (320,400 of which were Time-based Units and 437,100 Performance Units).
    Time-based Units will vest in tranches on a three-monthly basis, accounting for 12.5% of their respective total, starting on April 20, 2013 and ending on January 20, 2015.
    Performance Units will vest at the same vesting dates established for Time-based Units, provided that the price value of shares at vesting date is at least equal to the percentage of the initial value indicated in the regulation.
  • 2012 stock grant plan to assign a maximum of 1,600,000 conditional rights, restricted to the Director who filled the post of Managing Director of the Holding Company at the date of issue of the relevant plan and to employees of the Company and its subsidiaries, who were assigned a total of 1,152,436 Units (480,011 of which were Time-based Units and 672,425 Performance Units).
    Time-based Units will vest in tranches on a three-monthly basis, accounting for 12.5% of their respective total, starting on April 20, 2014 and ending on January 31, 2016.
    Performance Units will vest at the same vesting dates established for Time-based Units, provided that the increase in price value of Sogefi S.p.A. shares at each vesting date is higher than the increase of the Sector Index (as provided for by the Regulation) at that date.
  • 2013 stock grant plan to assign a maximum of 1,700,000 conditional rights, restricted to employees of the Company and its subsidiaries, who were assigned a total of 1,041,358 Units (432,434 of which were Time-based Units and 608,924 Performance Units).
    Time-based Units will vest in tranches on a three-monthly basis, accounting for 12.5% of their respective total, starting on April 20, 2015 and ending on January 31, 2017.
    Performance Units will vest at the same vesting dates established for Time-based Units, provided that the increase in price value of Sogefi S.p.A. shares at each vesting date is higher than the increase of the Sector Index (as provided for by the Regulation) at that date.
  • 2014 stock grant plan to assign a maximum of 750,000 conditional rights, restricted to employees of the Company and its subsidiaries, who were assigned a total of 378,567 Units (159,371 of which were Time-based Units and 219,196 Performance Units).
    Time-based Units will vest in tranches on a three-monthly basis, accounting for 12.5% of their respective total, starting on April 20, 2016 and ending on January 20, 2018.
    Performance Units will vest at the same vesting dates established for Time-based Units, provided that the increase in price value of Sogefi S.p.A. shares at each vesting date is higher than the increase of the Sector Index (as provided for by the Regulation) at that date.

The imputed cost for 2015 for existing stock grant plans is Euro 642 thousand, and is booked to the Income Statement under “Other non-operating expenses (income)”.

The following table shows the total number of existing rights with reference to the 2011-2015 plans:

  2015 2014
Not exercised/not exercisable at the start of the year 2,024,255 2,483,088
Granted during the year 441,004 378,567
Cancelled during the year (409,398) (504,125)
Exercised during the year (177,989) (333,276)
Not exercised/not exercisable at the end of the year 1,877,871 2,024,254
Exercisable at the end of the year 391,558 247,203

The line “Not exercised/not exercisable at the end of the period” refers to the total number of options, net of those exercised or cancelled during the current and previous years.

The line “Exercisable at the end of the period” refers to the total amount of options matured at the end of the period and not yet subscribed.

Stock option plans

The stock option plans provide beneficiaries with the opportunity to exercise an option to subscribe to newly-issued Sogefi shares at a set price and within a specific period of time. According to the regulation, a pre-condition for exercising the option is a continued employer-employee relationship with or the continued appointment as a director/executive of the Company or one of its subsidiaries throughout the vesting period.

The main characteristics of the stock option plans approved during previous years and still under way are outlined below:

  • 2006 stock option plan restricted to employees of the Company and its subsidiaries for a maximum of 1,770,000 shares (1.49% of the share capital as of December 31, 2015) with a subscription price of Euro 5.87, to be exercised between September 30, 2006 and September 30, 2016;
  • 2007 stock option plan restricted to employees of the foreign subsidiaries for a maximum of 715,000 shares (0.6% of the share capital as of December 31, 2015) with an initial subscription price of Euro 6.96, to be exercised between September 30, 2007 and September 30, 2017. On April 22, 2008, the Board of Directors, under the authority vested in it by the Shareholders’ Meeting, adjusted the exercise price from Euro 6.96 to Euro 5.78 to take into account the extraordinary portion of the dividend distributed by the Shareholders’ Meeting on the same date;
  • 2008 stock option plan restricted to employees of the foreign subsidiaries for a maximum of 875,000 shares (0.74% of the share capital as of December 31, 2015) with a subscription price of Euro 2.1045, to be exercised between September 30, 2008 and September 30, 2018;
  • 2009 stock option plan restricted to employees of the Company and its subsidiaries for a maximum of 2,335,000 shares (1.97% of the share capital as of December 31, 2015) with a subscription price of Euro 1.0371, to be exercised between September 30, 2009 and September 30, 2019;
  • 2009 extraordinary stock option plan restricted to beneficiaries of 2007 and 2008 phantom stock option plans, still employed by the Company or by its subsidiaries, after having waived their rights under the above-mentioned phantom stock option plans, for a maximum of 1,015,000 shares (0.86% of share capital as of December 31, 2015) of which 475,000 (first Tranche options) with a subscription price of Euro 5.9054, to be exercised between June 30, 2009 and September 30, 2017 and 540,000 (second Tranche options) with a subscription price of Euro 2.1045, to be exercised between June 30, 2009 and September 30, 2018;
  • 2010 stock option plan restricted to the Director who filled the post of Managing Director of the Holding Company at the date of issue of the relevant plan and to employees of the Company and its subsidiaries for a maximum of 2,440,000 shares (2.06% of the share capital as of December 31, 2015) with a subscription price of Euro 2.3012, to be exercised between September 30, 2010 and September 30, 2020.

Please note that the 2005 stock option plan restricted to employees of the Company and its subsidiaries expired on September 30, 2015 as per relevant regulation.

The following table shows the total number of existing options with reference to the 2005-2010 plans and their average exercise price:

  2015 2014
  Number Average price of the year Number Average price of the year
Not exercised/not exercisable at the start of the year 4,863,937 3.26 6,534,500 3.06
Granted during the year - - - -
Cancelled during the year (230,600) 5.00 (367,000) 4.30
Exercised during the year (97,000) 1.49 (1,298,763) 1.94
Expired during the year (345,600) 3.87 (4,800) 2.64
Not exercised/not exercisable at the end of the year 4,190,737 3.16 4,863,937 3.26
Exercisable at the end of the year 4,190,737 3.16 4,863,937 3.26

The line “Not exercised/not exercisable at the end of the period” refers to the total number of options, net of those exercised or cancelled during the current and previous years.
The line “Exercisable at the end of the period” refers to the total amount of options matured at the end of the period and not yet subscribed.
With reference to the options exercised during 2015, the average weighted price of the Sogefi share at the exercise dates is Euro 2.59.

Details of the number of options exercisable at December 31, 2015 are given below:

  Total
Number of exercisable options remaining at December 31, 2014 4,863,937
Options matured during the year -
Options cancelled during the year (230,600)
Options exercised during the year (97,000)
Options expired during the year (345,600)
Number of exercisable options remaining at December 31, 2015 4,190,737

Phantom stock option plans

Unlike traditional stock option plans, phantom stock option plans do not envisage the granting of a right to subscribe or to purchase a share, but entail paying the beneficiaries an extraordinary variable cash amount corresponding to the difference between the Sogefi share price in the option exercise period and the Sogefi share price at the time the option was awarded.

In 2009, as shown in the paragraph entitled “Stock option plans”, the Holding Company gave the beneficiaries of the 2007 and 2008 phantom stock option plans the opportunity to waive the options of the above-mentioned plans and to join the 2009 extraordinary stock option plan.

The main characteristics of existing plan under way in 2015 are as follows:

  • 2007 phantom stock option plan restricted to the Director who filled the post of Managing Director of the Holding Company at the date of issue of the relevant plan, managers and project workers of the Holding Company and to managers of Italian subsidiaries, for a maximum of 1,760,000 options at the initial grant price of Euro 7.0854, adjusted to Euro 5.9054 in 2008, to be exercised between September 30, 2007 and September 30, 2017. Following subscription to the 2009 extraordinary stock option plan, 475,000 options were waived.

Details of the number of phantom stock options as of December 31, 2015 are given below:

  12.31.2015
Not exercised/not exercisable at the start of the year 840,000
Granted during the year -
Cancelled during the year -
Exercised during the year -
Not exercised/not exercisable at the end of the year 840,000
Exercisable at the end of the year 840,000

The fair value as of December 31, 2015 of the rights awarded was calculated using the Black-Scholes method and amounts to Euro 8 thousand (it equalled zero at the end of 2014).

RESTRUCTURING COSTS

Restructuring costs amount to Euro 6,915 thousand (compared with Euro 16,195 thousand the previous year) and mainly relate to the Holding Company Sogefi S.p.A., to subsidiary Sogefi Filtration do Brasil Ltda for the relocation of the São Paulo production site to Atibaia, and to subsidiaries Filtrauto S.A. and Systèmes Moteurs S.A.S. for reorganising clerical employees.

“Restructuring costs” relate for the most part to personnel costs and are made up of the accruals to the “Provision for restructuring” (Euro 1,095 thousand, net of provisions made during the previous years and not utilised) and for the remaining part (Euro 5,820 thousand) of costs incurred and paid during the year.

LOSSES (GAINS) ON DISPOSAL

Net gains amount to Euro 1,597 thousand (net gains for Euro 66 thousand as at December 31, 2014), Euro 1,541 thousand of which relate to the sale by subsidiary Sogefi Rejna S.p.A of the suspension business unit for the aftermarket.

EXCHANGE (GAINS) LOSSES

Net exchange losses as of December 31, 2015 amounted to Euro 3,590 thousand (Euro 618 thousand as of December 31, 2014). Such differences are mainly attributable to the depreciation of the Argentine Peso and Brazilian real against the Euro.
The item includes approximately Euro 1.6 million relating to intercompany financial positions designated in Brazilian Real held by European companies and approximately Euro 1.4 million reflecting the debt exposure for the intercompany trade payables in Euro of Argentinian subsidiaries and for trade payables in USD towards third parties. Please note that the main outstanding intercompany trade and financial positions were closed in December 2015.

OTHER NON-OPERATING EXPENSES (INCOME)

These amount to Euro 32,373 thousand compared with Euro 24,769 thousand the previous year. The following table shows the main elements:

(in thousands of Euro) 2015 2014
Indirect taxes 8,435 7,672
Other fiscal charges 3,423 3,828
Imputed cost of stock option and stock grant plans 642 852
Other non-operating expenses (income) 19,873 12,417
TOTAL 32,373 24,769

(*) The reclassification of certain cost items was reviewed in 2015. The following 2014 balances were reclassified to allow for a comparison:

  • Euro 5,400 thousand were reclassified from “Variable sales and distribution costs” to “Other non-operating expenses (income)” reflecting an allocation made to Provision for product warranties;

“Indirect taxes” include tax charges such as property tax, taxes on sales revenues (taxe organic of the French companies), non-deductible VAT and taxes on professional training.
“Other fiscal charges” consist of the cotisation économique territoriale (previously called taxe professionnelle) relating to the French companies, which is calculated on the value of fixed assets and on added value.

The main components of “Other non-operating expenses (income)” are as follows:

of which non-recurring

  • costs relating to the shutdown of the Lieusaint plant of subsidiary Allevard Rejna Autosuspensions S.A., which took place in 2014, for the amount of Euro 417 thousand;
  • product quality and warranty costs for the amount of Euro 15,725 thousand, Euro 11,800 thousand of which reflect pending “Claims” relating to subsidiary Systèmes Moteurs S.A.S. as outlined at paragraph 19.

of which recurring

  • writedowns of tangible and intangible fixed assets for the amount of Euro 357 thousand;
  • penalty for the early termination of certain lease and logistical service agreements by subsidiaries Sogefi Rejna S.p.A. and Sogefi Filtration Ltd totalling Euro 592 thousand; 
  • provisions for environmental activities and material scrapped after a fire in subsidiary United Springs S.a.S. for the amount of Euro 193 thousand;
  • provisions for a dispute under way in subsidiary Sogefi Filtration Ltd for the amount of Euro 690 thousand;
  • actuarial losses in the amount of Euro 164 thousand relating to “Other long-term benefits – Jubilee benefit” in the French subsidiaries;
  • allocations to provisions for legal disputes with employees and third parties in several subsidiaries totalling Euro 979 thousand;
  • pension costs for employees no longer on the books of Allevard Federn GmbH for the amount of Euro 90 thousand;
  • penalty for tax disputes concerning indirect taxes for Euro 178 thousand mainly relating to subsidiaries Sogefi Engine Systems Canada Corp. and Sogefi Engine Systems Usa Inc.;
  • other recurring costs for the amount of Euro 488 thousand.

FINANCIAL EXPENSES (INCOME), NET

Financial expenses are detailed as follows:

(in thousands of Euro) 2015 2014
Interests on non convertible loans 12,823 9,671
Interest on amounts due to banks 9,080 10,791
Financial charges under lease contracts 663 719
Financial component of pension funds and termination indemnities 1,431 925
Loss on interest-bearing hedging instruments 4,279 3,935
Loss on anticipated closing of IRS contracts - 1,913
Net loss on fair value derivatives not in cash flow hedge 400 3,944
Other interest and commissions 7,359 9,907
TOTAL FINANCIAL EXPENSES 36,035 41,805

Financial income is detailed as follows:

(in thousands of Euro) 2015 2014
Gain on Cross currency swap in cash flow hedge 1,184 158
Gain on interest-bearing hedging instruments - 31
Interest on amounts given to banks 411 723
Fair value of the embedded derivative (call option) 1,450 13,960
Other interest and commissions 212 115
TOTAL FINANCIAL INCOME 3,257 14,987
     
TOTAL FINANCIAL EXPENSES (INCOME), NET 32,778 26,818

“Financial expenses, net” show an increase of Euro 5,960 thousand, of which Euro 12,510 thousand reflect lower gains on the fair value of the conversion option associated with the convertible bond “€ 100.000.000 2 per cent. Equity Linked Bonds due 2021” outlined in Note 19.
This negative effect is partly offset by non-recurring expenses incurred in the previous year as a result of financial debt restructuring transactions. More specifically, Euro 3,337 thousand reflect the difference between the amount paid and the net book value of the loans redeemed early, and Euro 1,913 thousand arise from the termination of IRS contracts in connection with redeemed loans. Net expense was also lower (Euro 3,544 thousand) thanks to a lower change in the fair value of derivatives no longer accounted for as cash flow hedges.

Please note that item “Change in fair value measurement of derivative not in cash flow hedge” is comprised of:

  • a financial charge of Euro 2,930 thousand reflecting the portion of the reserve previously booked to Other Comprehensive Income that will be reclassified to Income Statement over the same period of time expected for the differentials relating to the former underlying hedged item;
  • a financial income of Euro 2,530 thousand reflecting the change in fair value compared with December 31, 2014.

LOSSES (GAINS) FROM EQUITY INVESTMENTS

As at December 31, 2015, there are no losses from equity investments.

INCOME TAXES

(in thousands of Euro) 2015 2014
Current taxes 11,366 19,115
Deferred tax liabilities (assets) 305 (6,057)
Gain (loss) from partecipation to fiscal consolidation 1,242 -
TOTAL 12,913 13,058

The year 2015 recorded a tax rate of 71.9% compared to 60.9% in the previous year.

A reconciliation between the standard tax rate (that of the Holding Company Sogefi S.p.A.) and the effective tax rate for 2015 and 2014 is shown in the table below. Taxes have been calculated at the domestic rates applicable in the various countries. The differences between the rates applied in the various countries and the standard Italian tax rate are included in the line “Other permanent differences and tax rate differentials”.

(in thousands of Euro) 2015 2014
    Tax rate %   Tax rate %
Result before taxes 17,964 27,5% 21,453 27.5%
Theoretical income taxes 4,940   5,900  
Effect of increases (decreases) with respect to the standard rate:        
Statutory amortisation of goodwill        
Non-deductible costs, net 2,583 14,4% (878) -4.1%
Use of deferred tax assets not recognised in previous years (6,421) -35.7% (2,430) -11.3%
Deferred tax assets on losses for the year not recognised in the financial statements 5,943 33.0% 7,068 33.0%
Taxed portion of dividends 200 1.1% 2,615 12.2%
Other permanent differences and tax rate differentials 5,668 31.6% 783 3.6%
Income taxes in the consolidated income statement 12,913 71.9% 13,058 60.9%

Item “Non-deductible costs, net” includes approximately Euro 2.7 million reflecting non-deductible costs incurred when the French subsidiaries and the Holding Company Sogefi S.p.A. waived receivables owed by the indirectly controlled Argentinian subsidiaries.
The item “Use of deferred tax assets not recognised in previous years” mainly relates to subsidiaries Allevard Sogefi USA Inc., Sogefi Filtration Ltd and Sogefi M.N.R. Engine Systems India Pvt Ltd.; use of past losses for which no deferred tax assets had been recognised in previous years resulted in no taxes being posted on the positive results of these companies.
“Deferred tax assets on losses for the year not recognised in the financial statements” are mainly attributable to subsidiaries Sogefi Filtration do Brasil Ltda, S.ARA Composite S.A.S., Allevard Rejna Autosuspensions S.A. and Sogefi (Suzhou) Auto Parts Co., Ltd, for which there was no probability at the end of the year that such losses would be recovered.
The “Taxed portion of dividends” refers to the portion of dividends received from Group companies that is not tax-exempt and to the taxes on dividends paid by the French subsidiaries.
Item “Other permanent differences and tax rate differentials” includes a liability of Euro 1,242 thousand for the Holding Company Sogefi S.p.A. arisen when the CIR Group transferred its tax surplus, Euro 571 thousand reflecting the different tax rate applied to subsidiary Sogefi Filtration Ltd, and approximately Euro 2,900 thousand relating to the writedown of deferred tax assets booked by subsidiaries Sogefi Filtration do Brasil Ltda and Allevard Rejna Argentina S.A.in previous years deemed to be no longer recoverable.

DIVIDENDS PAID

No dividends were paid to the Holding Company shareholders during the year 2015. Dividends paid to non-controlling interests amounted to Euro 4,341 thousand.
The Holding Company Sogefi S.p.A. did not issue any shares other than ordinary shares; treasury shares are always excluded from the dividend.

EARNINGS PER SHARE (EPS)

Basic EPS

  2015 2014
Net result attributable to the ordinary shareholders (in thousands of Euro) 1,120 3,639
Weighted average number of shares outstanding during the year (thousands) 115,264 114,713
Basic EPS (Euro) 0,010 0.032

Diluted EPS

The Company only has one category of potential ordinary shares, namely those deriving from the potential conversion of the stock options granted to Group employees.

  2015 2014
Net result attributable to the ordinary shareholders (in thousands of Euro) 1,120 3,639
Average number of shares outstanding during the year (thousands) 115,264 114,713
Weighted average number of shares potentially under option during the year (thousands) 2,868 3,146
Number of shares that could have been issued at fair value (thousands) (2,136) (1,654)
Shares arising from the potential conversion of the convertible loan 18,572 18,572
Adjusted weighted average number of shares outstanding during the year (thousands) 134,568 134,777
Diluted EPS (Euro) 0.008 0.027

The “Weighted average number of shares potentially under option during the year” represents the average number of shares that are potentially outstanding under stock option plans (only for potentially dilutive options, i.e. with an exercise price lower than the average annual fair value of the ordinary shares of Sogefi S.p.A.), for which the subscription right has vested but has not yet been exercised at the end of reporting period. These shares have a potentially dilutive effect on basic EPS and are therefore taken into consideration in the calculation of diluted EPS.

The “Number of shares that could have been issued at fair value” represents the normalisation factor, being the number of shares that would have been issued dividing the proceeds that would have been received from subscription of the stock options by the average annual fair value of the Sogefi S.p.A. ordinary shares, which amounted to Euro 2.5133 in 2015, compared to Euro 3.5350 in 2014.

Please note that 1,821,304 shares that could dilute basic EPS in the future were not included in the calculation of diluted EPS for 2015 because their exercise price is higher than the average annual fair value of the ordinary shares of Sogefi S.p.A. in 2015.